Yes. Private employers can write their own COLA, a cost-of-living adjustment that raises pension checks to offset inflation, into a defined-benefit plan.
The Rohm and Haas Pension Plan did so, adding inflation growth to its annuity payments. That choice is uncommon. Most private pensions pay a fixed starting benefit, so retirees need to check whether inflation protection exists and how it works.
Table of Contents
- Must private plans protect against inflation?
- What happens after a plan promises a COLA?
- Do lump sums include the COLA value?
- Will PBGC pay future COLA increases?
- How do you check your own pension?
Must private plans protect against inflation?
No. Federal law does not require private plans to offer inflation protection. According to the U.S.
Department of Labor, private benefits were rarely tied to a cost-of-living index, with 7% having CPI-linked COLAs in 1995, as documented in the Labor Department pension-trends report. That makes private pensions different from Social Security. The Social Security Administration says automatic COLAs are common there, with adjustments using CPI-W measured from the third quarter of the last COLA year. A private retiree without a plan COLA keeps the same nominal check while prices rise.
What happens after a plan promises a COLA?
A promised COLA becomes part of the deal. The Internal Revenue Service treats that feature as part of the participant's accrued benefit, so cutting or removing it violates the anti-cutback rule in IRC 411(d)(6). Federal courts agree.
In litigation over the Rohm and Haas plan, the Seventh Circuit held the COLA was part of the accrued benefit and eliminating it violated ERISA's anti-cutback provision, as explained in the Seventh Circuit decision. The ruling followed Hickey v. Chicago Truck Drivers. Sponsors should treat a COLA promise as permanent.
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Do lump sums include the COLA value?
Yes, when the plan promises a COLA. ERISA requires a lump sum to equal the actuarial value of the accrued benefit under 29 U.S.C. 1054(c)(3).
A lump sum that ignores expected COLA growth understates that value. The practical point is simple. A worker choosing between monthly checks and one payment should see the same economic value in both forms. If COLA growth is missing from the lump-sum math, ask for a corrected calculation.
Will PBGC pay future COLA increases?
No. PBGC insurance does not preserve future inflation growth after termination. According to the Pension Benefit Guaranty Corporation, it will not guarantee COLAs after plan termination and pays only the base benefit accrued before termination, as stated in the PBGC guarantee-outcomes study.
Coverage for recent benefit improvements is also phased in. PBGC generally covers recent amendments at the larger of 20% or 20 dollars per month for each full year the change was in effect, with full coverage after five years. A COLA added shortly before failure may receive only partial coverage.
How do you check your own pension?
Read the summary plan description first. Private COLAs are optional, often ad hoc rather than automatic, cost sponsors substantially more to fund, and lose PBGC protection after termination.
- Confirm whether a COLA is automatic, capped, delayed, or granted by separate board action.
- Ask how the increase is calculated and whether it applies to joint, survivor, and lump-sum forms.
- Keep the annual benefit statement and any amendment notices with tax records.
- Do not confuse a plan COLA with tax-law COLAs. According to the Internal Revenue Service, IRC 415 dollar limits receive their own annual COLA, with the defined-benefit annual limit rising from 280,000 dollars for 2025 to 290,000 dollars for 2026, as listed on the IRS COLA increases page. That higher cap does not raise your check unless your plan formula provides it.
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