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 spiked since 2021 and has remained higher than in recent preceding 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

May 2024

Contact

Keith Brainard, Research Director
Alex Brown, Research Manager


Download Issue Brief



 


Become A Member

Becoming a member of NASRA offers a unique opportunity to join a community committed to the sound, efficient, and innovative stewardship of public retirement systems. Membership connects you with a network of professionals and experts, providing valuable insights into managing public retirement systems with a focus on sustainability and risk-averse strategies.

By joining NASRA, you gain the tools and resources to enhance the management of public retirement systems, ensuring their long-term success and reliability for generations to come.


 

What's New at NASRA: Latest Update on Employee Contributions to Public Pensions

NASRA updates six key briefs annually on public pension management. The latest focuses on employee contributions to public pensions. Unlike private sector pensions, state and local government employees contribute to their retirement benefits, a crucial practice for stable pension funding. Post-2008 financial downturn, many plans increased these contributions. This brief examines the contribution plans’ design, policies, and trends, underlining their importance in pension sustainability.