Can Your Pension Plan Afford To Give COLAs?

Over time, pensions shrink in value due to inflation, and retirees have successfully fought for cost-of-living adjustments (COLAs) to their pensions to counteract the effects of inflation. To see how inflation affects your pension, use the Census Bureau's Inflation Calculator or the Inflation Calculator on the web site for the Federal Reserve Bank of Minneapolis.*

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 COLA. You can find out whether your plan has surplus assets by looking at the financial forms the plan is required to file with the government. These are called Form 5500s.

If you are a participant in a private pension plan, you have the legal right to request the most recent Form 5500 from the plan administrator. Participants can also find a less recent copy of the Form 5500 on a web site called FreeERISA.com.

Once you’ve gotten the Form 5500, follow these steps to determine if your plan has surplus assets:

  1. Look for the form's "Schedule B -- Actuarial Information."    
  2. Find line 2(a), which is labeled Current Value of the Assets.  This column notes the total value of assets owned by the pension plan.
  3. Find line 2b(4), the total benefits column.  This column shows the total amount the plan owes in benefits. 

5500 Sample

If the amount in line 2b(4) is less than the amount in line 2(a), your plan may be able to afford an increase in benefits for retirees.

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 a cost-of-living adjustment, a large number of union plans provide a "13th check" at the end of the year.

 

 

 

 

*Both inflation calculators rely on information provided by the Consumer Price Index and provide valuable information for those wondering how much a dollar can buy today compared to what it could buy when you first retired.