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Can Your Pension Plan Afford To Give COLAs?

Over time, pensions shrink in value due to inflation. To see how inflation has affected your pension, use the Census Bureau's Inflation Calculator.

If your pension plan is overfunded – that is, its assets (the amount in the plan) are greater than its obligations (the amount it must pay in pension benefits), your plan may be able to afford a cost of living adjustment, often called a “COLA.” You can find out whether your plan is overfunded by looking at the annual pension plan funding notice, which your plan is required to provide every year. This notice will tell you the funding level of your pension plan. You should be aware that if your pension plan’s funding level is below a certain percentage, the law limits benefits payable by the plan, and benefit improvements.

Some retirees in overfunded plans have successfully advocated for increases in their pensions to partially counter the effects of inflation. By using the Census Bureau’s Inflation Calculator, they have been able to document that the pension dollars they are receiving today buy far less than when they retired.

COLA Statistics

While state and federal pensions are typically adjusted for inflation, most private pensions are not.  A 2000 Bureau of Labor Statistics survey reported that only nine percent of blue collar and service industry employees who are in traditional pension plans received an automatic cost of living adjustment in that year. Instead of an automatic adjustment, some union-negotiated plans provide a "13th check" at the end of the year.  GE announced that it would be providing a 13th check for 500,000 retirees in December 2011. This will be GE’s ninth 13th check for retirees since 1980.

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