Pension COLAs

HEHS-95-219R: Published: Aug 11, 1995. Publicly Released: Aug 23, 1995.

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Pursuant to a congressional request, GAO provided information on the frequency and characteristics of cost-of-living adjustments (COLA) that retirees receive from public and private pension plans. GAO noted that: (1) Social Security and federal pension plans incorporate automatic, annual COLA; (2) over half the states reporting to the Bureau of Labor Statistics provide automatic COLA annually, generally capped between 3 and 5 percent; (3) the remaining states mainly provide ad hoc COLA, although the number of states granting ad hoc COLA has gradually decreased since 1987, due to lower inflation; (4) ad hoc COLA in private pension plans occur less frequently than automatic COLA in the public sector and the plans often specify a maximum increase; (5) a number of factors, such as union negotiations, affect employers' decisions to provide COLA increases; (6) COLA provisions vary widely among industries, ranging from 3 percent of pension plans in the retail sector to over 60 percent in the transportation industry; and (7) ad hoc adjustments to private sector pension benefits have declined in recent years from over 50 percent to under 10 percent of plans.

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