Pension Board Resource Guide - public copy.xlsx

	A	B	C	D	E
1	Acronym	Term	Definition	Example	Notes
2		13th Check	The 13th check refers to an extra check some pension systems may issue to its pensioners at the end of the fiscal year if a pension fund does unexpectedly well.	Detroit's pension systems delivered 13th checks regularly to pensioners in efforts to lessen poverty among retirees. See https://ballotpedia.org/13th_Check	A feature of the past rather than current public plans
3	ABO	Accumulated Benefit Obligation	The ABO liability concept includes the present of value of: the remaining pension benefits to be paid to currently retired employees, and the retirement benefits earned to date by active employees based on their current salaries and years of service. It does NOT include the effect of future salary increases or service on the benefits to be paid to active
4		Actuarial Accrued Liability	The present value of future benefits earned for accrued service. Plans report the accrued liability using two liability concepts: the projected Benefit Obligation (PBO) and the Accumulated Benefit Obligation (ABO). Historically, public sector plans use the PBO, while the private sector uses the ABO.
5		Actuarial Assets	The asset value used for valuation purposes (i.e. calculating the reported funded ratio and annual required contributions). Generally, it is based on the current market value of assets plus a portion of prior years’ unrealized gains and losses. On average, public pensions carry forward 5 prior years of unrealized gains and losses.
6		Actuarial Cost Method	The method used to allocate the present value of expected lifetime benefits to each period between plan entry and retirement. Most public pension plans use either the entry age normal (EAN), Projected Unit Credit (PUC), or Aggregate Cost (AGG) method.
7		Actuary	A business professional who deals with the measurement and management of risk and uncertainty in fields like insurance. When it comes to public pensions, actuaries determine how much employers and employees need to contribute in a given year so that promised pension benefits will be available when the employee retires.
8	AGG	Aggregate Cost Method	The AGG method allocates the difference between current actuarial assets on hand and the present value of future benefits (PVFB) evenly over future active payroll or service. It is similar to EAN in that it allocates the liability evenly over periods. However, unlike EAN and PUC, AGG plans do not have a concept of accrued liabilities. Each year the AGG method allocates the difference between the actuarial assets on hand and the total present value of benefits over future periods, and does not consider past allocations as an accrued liability.
9		Amortization Policy	An amortization policy is defined as the rules and processes that determine the length of time and the structure of payments required to systematically eliminate a funding shortfall, known as the unfunded actuarial accrued liability (UAAL).	A pension plan’s amortization policy is a central feature of its funding policy, and the effectiveness of the amortization policy can have significant effects on a pension plan’s long-term cost.
10	ARC	Annual Required Contribution	The required annual required contribution by the employer necessary to fund the pension’s annual normal cost and amortize the unfunded accrued liability. Prior to 2013 GASB prescribed the calculation of an ARC using an amortization period of less than 30 years for the unfunded liability.
11		Annuity	A pension annuity is a financial product that pays a guaranteed income for a fixed period or for life.
12	COLA	Cost of Living Adjustment	Percent change in funding amount to beneficiaries of a retirement system in order to adjust benefits to counteract the effects of inflation.
13		Defined Benefit Plan	A pension plan that specifies the amount of pension benefits to be provided at a future date (or after a certain period of time). The benefit amount is based on one or more factors such as age, years of service, and salary.
14		Defined Contribution Plan	A retirement plan that provides an individual retirement account for each participant with benefits based solely on (1) the amount contributed to the participant’s account plus (2) any income, expenses, gains, losses, and forfeitures from other participants. Contributions to the account may be made by the employee or the employer.	403(b) or 457 plans
15		Discount rate	A rate that can be used to determine how much money is needed at one point to earn a certain amount in the future. The discount rate is therefore similar to an interest rate
16	DROP	Deferred Retirement Option Plan
17	EAN	Entry Age Normal	Plans that use this method allocate the present value of total projected lifetime retirement benefit equally (typically as a percent of payroll) over each year of the employee’s career. As each year of the employee’s career passes, the allocated portion becomes part of the accrued liability. The EAN method is the dominant method used in the public sector.
18		Experience Gain (Loss)	The difference between actual experience and that which was expected based upon the plan’s actuarial assumptions. The full amount of these differences is generally accounted for incrementally over future periods until all the gain (loss) has been realized.
19		Funded Ratio	The ratio of actuarial assets to actuarial accrued liability.		Number used to describe how fully a pension plan is funded.
20	GRSD	General Retirement System City of Detroit
21		Hybrid Plan	The term hybrid generally refers to plans that combine elements of both defined benefit and defined contribution plans to generate participants’ benefit upon retirement.		Plan objective will drive the design, and design will drive risks and features; see https://equable.org/what-is-a-hybrid-retirement-plan/#:~:text=In%20a%20hybrid%20retirement%20plan,with%20a%20defined%20contribution%20plan.
22		Membership	Participants in a retirement plan; members include active, inactive and beneficiaries.
23		Normal Cost	The present value of projected lifetime benefits to be paid to active workers that is allocated to the current year by the actuarial cost method.
24	OPEB	Other Post-Employment Benefits	Other Postemployment Benefits (or OPEB) are benefits (other than pensions) that U.S. state and local governments provide to their retired employees. These benefits principally involve health care benefits, but also may include life insurance, disability, legal and other services.
25		Pension	Steady income given to a person as the result of service that begins when a specific event occurs (such as retirement). Pensions are typically paid monthly and based on factors such as years of service and prior compensation. The payment may be made by a government, employer, pension fund, or life insurance company.
26		Pension Spiking	A practice in which city employees convert certain benefits such as unused sick time or saved vacation pay to boost their pension benefits.		There are two main factors by which pension payouts are calculated: the salary - usually the highest salary - of the employee and the length of service of the employee. Pension spiking can be done either by converting saved sick and vacation pay to boost the salary on which the pension is calculated or by crediting saved sick and vacation time to artificially extend the length of service on which the pension is based. This practice is not illegal in most cities and states and is allowed or prohibited at the discretion of administrators.
27	PFRS	Police and Fire Retirement System City of Detroit
28	PVFB	Present Value of Future Benefits	The PVFB liability concept includes the present value of: the remaining pension benefits to be paid to currently retired employees, the retirement benefits earned to date by active employees based on their current salaries and years of service, and the impact of future salary increases and service on the benefits to be paid to active workers. This liability concept is the present value of the remaining pension benefits to be paid to currently retired employees plus the present value of the actual lifetime benefit that active employees are expected to have earned at the time of their retirement.
29	PBO	Projected Benefit Obligation	The PBO liability concept includes the present value of: the remaining pension benefits to be paid to currently retired employees, retirement benefits earned to date by active employees based on their current salaries and years of service, and the effect of future salary increases on the value of benefits already earned by active workers. It does NOT include the impact of future service on the benefits to be paid to active workers.
30	PUC	Projected Unit Credit	The PUC method is more commonly used in the private sector. For plans that use this method, the normal cost in a given year is the present value of the additional expected lifetime retirement benefit that the employee earned for the additional year of service. The lifetime benefit is based on the final average salary the employee is expected to have at retirement. If the benefit formula and the expected final salary remain unchanged through the worker’s career, then the additional pension benefit the employee earns in each year will also remain unchanged. The annual cost of that increase in benefit, however, will rise as workers approach retirement and annual pension contributions have less time to accumulate investment earnings. So employers with an aging workforce that use this costing method will see their annual pension expense rise over time.
31		Rate of Return	The ratio of money earned or lost on an investment relative to the amount of money invested.		The average expected return on assets used in most public pension valuations is close to 8 percent, with a range from 6 percent to 8.5 percent.
32		Retirement System	A pension plan in which investments, contributions, and benefits are administered as a separate entity independent of the parent government general fund. Assets are accumulated and benefits paid under a particular set of actuarial assumptions, including employee age, compensation, and service credits.		There are single employer systems, in which one government is the sole sponsor of the pension plan, as well as multiple employer systems, where two or more governments maintain membership on behalf of their employees.
33		Smoothing	The actuarial value of assets reflects changes based on the periods pension plans use to phase in investment gains and losses, a calculation also known as smoothing. Smoothing reduces year-to-year volatility in a plan's funding level and required cost.
34		Survey Data	Data collected on total holding and investments, total revenue, employee contributions, government contributions, total expenditures, benefits paid, and total deposits for both State and Local retirement systems. Data are shown for individual retirement systems as well as at the national, state, and local level.
35	UAAL	Unfunded Actuarial Accrued Liability	The difference between the actuarial accrued liability and valuation assets. It is sometimes referred to as “unfunded accrued liability.”	If a pension system owes its members $20 million in pension benefits, but it only has $18 million in assets, then the $2 million difference is the unfunded actuarially accrued liability.	UAAL is never due all at once, but can be paid off over time.
36		Vesting	Process by which a participant obtains nonforfeitable rights to benefits, such as an employee retirement plan. Typically, these rights accrue based on an employee’s years of service to an employer.	For example, an employee may be required to work for an employer for five years before becoming fully vested in their pension.
37		Withdrawals	Amounts paid to employees or former employees or their survivors, representing return of contributions made by employees during the period of their employment, and any interest on such amounts.		Also includes any transfers of investment holdings or reimbursements for benefits paid where another pension fund assumes responsibility for direct benefit payment to retirees.
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