A key feature of teacher pension plans is that they offer guaranteed income for life. But unless the purchasing power of that pension income keeps up with inflation, the guarantee doesn’t necessarily ensure financial security. That is why many defined benefit pensions for teachers come with cost-of-living adjustments, or COLAs.
However, just because there are many plans with COLAs doesn’t mean there is widespread protection from inflation.
Equable Insights
- Average teacher pension COLA in 2025: 1.28%
- CPI inflation in 2025: 2.7%
- COLA types: Compounding vs. noncompounding, automatic vs. ad hoc
What is the Average COLA for Teacher Pension Plans?
The average COLA provided by teacher pension plans in 2025 was 1.28%.[1] This is firmly below the 1.77% average cost-of-living adjustment offered to all public pension plans.
Both figures are below most measures of actual price inflation in 2025. For example, the Consumer Price Index (CPI), calculated by the Bureau of Labor Statistics, increased 2.7% from July 2024 to July 2025, a timeframe that aligns with most public retirement systems’ fiscal year end date (CPI inflation was also 2.7% for the full year ending December 2025).
That is because many COLA policies do not exactly match inflation. Instead, COLA rules have maximum rates (e.g., increasing at the rate of inflation up to 2%) or are linked to other factors (e.g., a 2% COLA but only if the pension fund for base benefits has adequate resources).
There are some reasonable financial reasons for these rules. Some years, retired teachers get COLAs that are actually larger than inflation. However, the net effect during the last few years has been that public pension COLAs frequently are less than inflation.
Teacher pension COLAs vary in how much inflation protection they provide. They also vary in who gets the benefit adjustments, as shown in the table below.
Not all teacher pension COLAs are created equal. If you are trying to determine whether or not a COLA is adequate enough to maintain the spending power of your retirement benefits, you should consider the following elements of your plan’s COLA policy.
Compounding Versus Noncompounding COLA Benefits
Retirement funds have two ways of adjusting underlying benefits when paying out teacher public pension COLAs.
Compounding Benefits
A compounding COLA is one in which retirement funds permanently adjust the base benefit and add any future changes to benefits on top.
For example, someone with a $40,000 pension that gets a 2% COLA will have their base benefit increased to $40,800 ($40,000 ✕ 1.02). The next year, if inflation results in another 2% COLA, then the adjustment is calculated based on the new, higher number. So in this case, the benefit would increase to $41,616 ($40,800 ✕ 1.02).
Noncompounding Benefits
A noncompounding COLA is one in which all inflation adjustments are based on the original pension benefit value. Each year benefits increase, you get to keep the adjustment from the previous year, but the percentage increase is based on your original pension.
For example, a former teacher with a $40,000 pension that got a 2% COLA would see $800 added on top for a total pension of $40,800. The next year, a 2% COLA would be calculated on the original $40,000 pension. That $800 adjustment would then be added on top for a total pension of $41,600.
Three Types of Automatic Public Pension COLAs
There are generally three policy frameworks for those teachers who do have automatically granted COLAs.
- Fixed-rate COLAs: A pre-fixed specific percentage of benefit increase (or minimum dollar amount).
- COLAs linked to inflation: A percentage increase to benefits based on the national CPI, a local CPI, or the Social Security inflation rate. The actual amount is typically “up to” a maximum rate, such as 2% or 3%.
- COLAs linked to plan performance: A percentage increase to benefits that is dependent on the funded ratio and/or investment performance of the underlying pension plan. The actual amount is also typically “up to” a maximum rate, but that maximum rate is determined by the specific provisions around plan performance. For example, the maximum COLA rate may be cut in half or suspended if the pension fund is under 80% funded.
Some state pension funds have COLAs linked to both inflation and pension plan performance.
Ad Hoc Cost-of-Living Adjustments
There are a number of teacher pension plans that do not provide consistent inflation protection. Some of these states have no legal provisions to offer COLAs. Other states only payout COLAs if the legislature authorizes the benefit adjustment. Because COLAs are discretionary in these states, they are called “ad hoc” COLAs. These COLAS are also heavily dependent on local politics and legislative budgets.
Notes
- This is an average of 91 public pension plans, including actual reported percentage rates adjusting benefits starting in the 2025 calendar year and percentage rates based on published COLA policies.
