Alabama state retirees will see a COLA increase only when the legislature passes one, and the most recent was Act 2025-336, signed into law in 2025. Unlike Social Security, the Employees’ Retirement System (ERS) and Teachers’ Retirement System (TRS) do not include an automatic cost-of-living adjustment. Your monthly benefit stays at the amount calculated when you retired unless lawmakers act.1The Retirement Systems of Alabama. The Retirement Systems of Alabama – House Select Committee Presentation
Why Alabama Has No Automatic COLA
Most state pension plans build automatic COLAs into their benefit design and pre-fund the cost across each employee’s career. Alabama chose a different structure. The Retirement Systems of Alabama has confirmed that retiree COLAs are not part of the plan design for ERS or TRS, and that every COLA ever granted has come through a separate act of the legislature, with no pre-funding of the actuarial cost.1The Retirement Systems of Alabama. The Retirement Systems of Alabama – House Select Committee Presentation Nationally, 74 state pension plans provide automatic COLAs; 27 use the ad hoc approach Alabama follows.
The practical effect is simple. No inflation number triggers an increase. There is no formula. Whether your check goes up in any given year depends on whether the legislature decides, in that session, to pass a bill and appropriate the money.
The 2025 Increase and the Long Gap Before It
In 2025, the legislature passed Act 2025-336, a retiree benefit increase. The act specifically noted that it does not affect any previous COLA or one-time bonus granted under earlier legislation, meaning the increase stacks on top of whatever benefit history a retiree already had.2The Retirement Systems of Alabama. Act 2025-336 (HB158) Retiree Benefit Increase
Before that, retirees had waited a long time for anything permanent. The last permanent COLA for TRS was a 7 percent increase in 2007, which added roughly $924 million in unfunded liability to the Teachers’ Retirement System.3The Retirement Systems of Alabama. Alabama Lawmakers Discuss Cost Behind COLA Increases for Retired Teachers That price tag made later legislatures cautious. For nearly two decades between 2007 and 2025, retirees received only occasional one-time bonuses, typically paid at $1 or $2 per month of service as a lump sum rather than a permanent bump to the monthly check.
Whether another COLA follows in the next budget cycle is a legislative decision, not an automatic one, and it usually turns on the funded status of the retirement systems and the room in the state budget.
Older COLAs Still Built Into Benefits
Because every COLA was its own act, the Alabama Code carries a series of statutes that each apply to retirees who left service before a specific date. If you retired long ago, one or more of these may already be part of your monthly benefit.
Section 36-27-21.1 gave a flat supplemental benefit to anyone who retired under ERS or TRS before October 1, 1977, with the dollar amount tiered by the size of the existing monthly benefit.4Alabama Legislature. Alabama Code Title 36 Chapter 27 – Section 36-27-21.1 Section 36-27-21.2 added a percentage increase for those who retired before October 1, 1979, with the size of the raise depending on how many years back the retirement date fell.5Alabama Legislature. Alabama Code Title 36 Chapter 27 – Section 36-27-21.2 Section 36-27-21.3 took a service-based approach for retirees before October 1, 1981, granting $1 per month for each year of creditable service.6Alabama Legislature. Alabama Code Title 36 Chapter 27 – Section 36-27-21.3
The most commonly referenced of the older statutes is Section 36-27-21.7, which applies to certain retirees whose effective retirement date was before October 1, 1989. Eligible retirees received a 10 percent increase, with a floor of $20 and a ceiling of $50 per month.7Alabama Legislature. Alabama Code Title 36 Chapter 27 – Section 36-27-21.7 TRS retirees have their own overlay in Section 16-25-110, which set a COLA effective October 1, 1996, calculated as the greater of $25 per month or a formula combining 2 percent of the current benefit with $1 per year of service.8Alabama Legislature. Alabama Code Title 16 Chapter 25 – Section 16-25-110
If you are unsure which of these apply to your check, the Retirement Systems of Alabama can confirm the increases already reflected on your account.
The Local Employer Opt-In
A recurring feature across Alabama’s COLA statutes is that local government employers participating in ERS under Section 36-27-6 must affirmatively elect to provide the increase to their retirees. The state does not force them to. If your former employer was a city, county, or other local entity, your eligibility for a given COLA depends on whether that employer chose to opt in.
Under Section 36-27-21.7, an electing employer bears the full cost of the increased benefits, may opt in at the start of any fiscal year, and owes no retroactive payments for the period before the election.7Alabama Legislature. Alabama Code Title 36 Chapter 27 – Section 36-27-21.7 Section 36-27-21.6 also lets county commissions elect COLAs on behalf of retirees from defunct public hospitals or related facilities that once participated in ERS.9Alabama Legislature. Alabama Code Title 36 Chapter 27 – Section 36-27-21.6
Compared to Social Security
Social Security’s 2026 COLA is 2.8 percent, calculated from the Consumer Price Index for Urban Wage Earners and Clerical Workers.10Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet That index rose 2.2 percent over the 12 months ending in February 2026.11Bureau of Labor Statistics. Consumer Price Index – February 2026 Alabama retirees who also collect Social Security receive that federal COLA on their Social Security check each year, whether or not the state grants a pension increase.
The gap matters most for retirees who lean heavily on their state pension. If inflation runs at 3 percent for a decade while the pension stays flat, purchasing power drops by close to a quarter. That is the trade-off built into Alabama’s ad hoc design.
Taxes on a COLA Increase
Alabama exempts ERS and TRS retirement income from state income tax. Section 40-18-19 lists ERS and TRS allowances, pensions, and annuities among the exemptions available to resident taxpayers, and any COLA or one-time bonus added to your pension falls under the same exemption.12Alabama Legislature. Alabama Code Title 40 Chapter 18 – Section 40-18-19 Beginning January 1, 2023, Alabama also provides a $6,000 exemption on other taxable retirement income for taxpayers age 65 and older.
Federal tax is a different matter. Pension payments, including COLA increases, remain subject to federal income tax on the taxable portion. Your pension administrator reports the taxable amount on Form 1099-R, and you can adjust withholding using Form W-4P.13Internal Revenue Service. Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments (2026) A COLA lifts your taxable income by the same amount it lifts your check, which can occasionally shift a bracket or change how much of your Social Security is taxable.
The Social Security Fairness Act Effect
Two federal provisions used to reduce Social Security checks for many Alabama retirees who had worked in non-covered public employment: the Windfall Elimination Provision (WEP), which cut retirement benefits for workers with a mixed career, and the Government Pension Offset (GPO), which cut spousal or survivor benefits by two-thirds of the government pension amount.
Both were eliminated by the Social Security Fairness Act, signed into law on January 5, 2025. WEP and GPO no longer apply to benefits payable for January 2024 and later, and the Social Security Administration is processing retroactive adjustments back to that date.14Social Security Administration. Social Security Fairness Act – Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) Update About 72 percent of state and local public employees already worked in Social Security-covered employment and were never affected by these rules, but the change matters for those who were. It sits alongside, not inside, any state pension COLA: the federal fix repairs a federal reduction, while any increase to the ERS or TRS check itself still depends on the Alabama legislature.