Industry News

On November 13, 2019, the National Association of State Retirement Administrators (NASRA) released its issue brief, Cost-of-Living Adjustments, which updates an earlier version published in December 2018.  The brief discusses: 1) the purpose of cost-of-living adjustments (COLAs); 2) types of COLAs; 3) costs of COLAs; and 4) recent state COLA legislative changes.

According to the brief, most state and local government pension plans provide some form of COLAs to offset or reduce the effects of inflation on retirement income.  In addition, COLAs are important for state and local government employees who do not participate in Social Security in order to supplement their income during disability or normal retirement.  Typically, governments prefund the cost of a COLA over an employee’s working career. 

The report also provides a summary of COLA provisions by state-level plans, including any recent legislative changes.  According to the report, of the 99 selected state-level plans that provide COLAs, 72 provide them on an automatic basis and 27 provide them on an ad hoc basis.

In addition, since 2009, 18 states have changed their COLAs for current retirees, seven states have changed COLAs for current employees’ future benefits, and six have changed COLAs for future employees only.  Since 2016, only three states have enacted COLA reductions that affect one or more major employee groups.  However, in several states, the legality of these changes has been challenged.  In addition, some states are including provisions that would allow COLAs to increase if the plan’s funding status or fiscal conditions improve or if inflation rises. 

The report also includes an appendix with a listing of COLA provisions for many state retirement plans and identifies the applicable changes from 2009-2019. 

The brief is available here.