COLA Cuts in State/Local Pensions

Alicia H. MunnellJean-Pierre Aubry Mark Cafarelli

SLP#38

The brief’s key findings are:

  • Since the financial crisis, 17 states have reduced, suspended, or eliminated cost-of-living-adjustments (COLAs) for public employee pensions.
  • This response was surprising as current employees and retirees tend to be legally shielded from benefit cuts.
  • But the COLA cuts have largely been upheld in the courts under the rationale that – unlike core benefits – they are not part of a contractual right.
  • In short, defined benefit promises in the public sector are not as secure as many thought.