Cost-of-Living Adjustment (COLA) Designs for New Hampshire

Cost-of-living adjustments (COLAs) for retirees in the New Hampshire Retirement System are currently awarded on an ad hoc basis, subject to annual approval by the Legislature. The Legislature wishes to explore alternatives to this approach. This report gives a broad overview of the different types of COLAs that other entities—state government pension plans and federal government benefit programs—currently employ to maintain the purchasing power of benefits, as well as maintain the solvency of their funds. The COLAs for other states’ pension plans are based on: ad hoc determinations by the legislature or pension plan administrator, fixed rate adjustments, the ability of a reserve account to fund an adjustment, an index of the CPI, the investment returns of the fund, and the level of contributions. We performed a comparative analysis of state COLA designs, and will end with a set of policy recommendations.