Some pension plans never adjust for COLA, a cost-of-living adjustment tied to inflation, because no law requires private plans to include one and most were designed to pay a fixed monthly amount. Sponsors also avoid COLAs because automatic increases must be pre-funded and raise required contributions each year. That design choice matters over a long retirement. A fixed check buys less each year prices rise, while only plans that wrote an inflation rule into their terms pay more.
Table of Contents
- Private plans promise a fixed check
- Why is Social Security different?
- Public plans often promise COLAs, then restrict them
- What happens when a plan has no automatic increase?
Private plans promise a fixed check
Private employers set up pensions voluntarily. The U.S. Department of Labor states in Labor Department guidance on ERISA standards that federal law sets minimum standards for plans employers choose to offer, but does not force them to include inflation protection.
Most private defined-benefit pensions use that freedom to promise a set amount at retirement. The federal pension insurer describes insured private plans in the federal pension insurer's description of insured plans as typically paying a fixed monthly sum, not a payment that rises with prices. Without a written COLA clause, the sponsor has no duty to add one later. Retirees keep the same nominal benefit even when living costs climb.
Why is Social Security different?
Social Security adjusts by law. The Social Security Administration sets its annual COLA from inflation in the CPI-W, with a 2.8% increase for 2026 based on price change from third-quarter 2024 to third-quarter 2025. Federal worker pensions also have rules, but they limit increases.
The U.S. Office of Personnel Management explains in the Office of Personnel Management explanation of FERS COLAs that FERS COLAs generally begin at age 62 with exceptions, pay full inflation only up to 2%, then pay 2% or inflation minus one point. Private pensions lack that legal trigger. Their amount depends on the plan document, not on the inflation index.
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Public plans often promise COLAs, then restrict them
About three-fourths of state and local plans provide an automatic COLA that needs no new vote, according to the National Association of State Retirement Administrators. Other public plans use ad hoc increases or increases tied to investment performance. Automatic increases carry a direct cost.
Equable Institute explains that actuaries add expected post-retirement increases to annual normal costs, which raises required employer and sometimes employee contributions. When funding falls short, sponsors cap, suspend, or condition the increase. Pew reports Montana capped its guaranteed adjustment at 1.5% and pays zero when the amortization period reaches 40 years.
What happens when a plan has no automatic increase?
Texas TRS has no ongoing or automatic COLA, so increases require legislative and voter action. The Teacher Retirement System of Texas distinguishes in the Teacher Retirement System of Texas FAQs on benefit enhancements between a permanent one-time COLA that raises future checks and a one-time 13th check that does not.
The gap compounds. Equable Institute estimates a $28,000 Texas pension started in 1999 was worth under $13,815 by 2026 and would need to be about $56,750 to match inflation. Readers with a fixed pension can take practical steps:.
- Read the summary plan description for COLA, cap, age, and funding conditions.
- Separate base benefits from one-time checks when comparing offers.
- Plan other income and savings to cover rising housing, food, and medical costs.
- Ask the plan administrator whether any increase needs legislation or board action.
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