Cost-of-Living Adjustments

Introduction

Periodic adjustments in some form, generally referred to as cost-of-living adjustments (COLAs), are provided on most state and local government pensions. The purpose of a COLA is to offset, to some extent, the effect of inflation on retirement income. Considerable variation exists in the way COLAs are designed, and, in many cases, they are determined or affected by other factors, such as the actual rate of inflation or the financial condition of the plan. COLAs add both value and cost to a pension benefit. Public pension COLAs have received increased attention in recent years amid two competing factors: first, in the wake of the Great Recession, many states reduced benefits; and second, inflation rose in 2021 and 2022 to its highest level in 40 years. This brief presents a discussion about the purpose of COLAs, the different types of COLAs provided by government pension plans, and an overview of recent state changes to COLA provisions.

Date published

August 2025

Contact

Keith Brainard, Research Director
Alex Brown, Research Manager

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What's New at NASRA: Updated Cost of Living Issue Brief

Cost-of-Living Adjustments (COLAs) play a significant role in public pensions. They help retirees keep up with rising prices, but they also add costs to pension plans. Policymakers and plan sponsors are tasked with balancing three things: benefits adequacy, plan sustainability, and affordability for members and plan sponsors.
The recent increase in inflation caused many policymakers and, in some cases pension trustees, to review how benefits are designed and paid for, including the way COLAs are granted and funded. NASRA’s recently updated issue brief on the lates trends in COLAs is available in the NASRA Research Center.