Munnell, Aubry & Cafarelli: COLA Cuts in State/Local Pensions

From the Introduction:

One of the more surprising responses of public plan sponsors to the financial crisis and the ensuing recession was their reduction, suspension, or elimination of cost-of-living adjustments (COLA) for current workers and, in a number of cases, current retirees. The response was surprising because it has often been assumed that public plan participants have greater benefit protections than their private sector counterparts. The Employee Retirement Income Security Act of 1974 (ERISA), which governs private pensions, protects accrued benefits, but it allows employers to change the terms going forward. In contrast, most states have legal provisions that constrain sponsors’ ability to make changes to future benefits for current workers. Yet they were able to change the COLA for current workers and often for people already receiving it. This brief provides an overview of the COLA changes made to date, discusses the impact of eliminating COLAs on benefits, and explores the extent to which the courts view COLAs differently from ‘core’ benefits.


Available for download here.