Pension discussions often seem like they are in a foreign language. Learning the terms can help you understand how these issues impact you.

  • Annual Required Contribution (ARC): The ARC is the employer’s periodic required contribution to a defined benefit plan. The ARC is the sum of two parts: (1) the normal cost, which is the cost for benefits attributable to the current year of service, and (2) an amortization payment, which is a catch-up payment for past service costs to fund the Unfunded Actuarial Accrued Liability over the next 30 years.

  • Cost of Living Adjustment (COLA): An additional benefit amount paid to retirees based on the increase in the cost of goods and services.

  • Crowding Out: If the cost of funding public pensions increases, it commands a greater portion of state and local government budgets, thereby “crowding out” other spending priorities. For example, as school districts spend more on pension contributions fewer funds are available for teacher salaries and classroom needs.

  • Defined Benefit (DB): With a Defined Benefit, or DB, plan, employers provide employees a specific retirement benefit based on salary and years of service. Retirement funds are pooled together and professionally managed to increase efficiency and remove financial risk for the participants. These plans provide a steady stream of retirement income for life.

  • Defined Contribution (DC): Defined Contribution (DC) plans provide a means for both employees and employers to contribute a steady stream of revenue into the participant’s retirement account. DC plans generally allow participant-directed investments. DC benefits are also portable from job to job. In DC plans, the rates of employer and/or employee contributions are usually defined as a percentage of salary. How much income a participant receives in retirement will depend on several factors, including salary level, duration of contributions,  investment earnings, age at retirement and the extent to which a participant chooses to annuitize his/her benefit.

  • Governmental Accounting Standards Board (GASB): The body that creates accounting standards for public entities.

  • Public Employees Retirement Association (PERA): PERA provides retirement and other benefits to the employees of more than 500 government agencies and public entities in Colorado. PERA is the 21st largest public pension plan in the United States. Established by state law in 1931, PERA operates by authority of the Colorado General Assembly. The PERA Board of Trustees has the authority to adopt and revise rules in accordance with state laws.

  • Smooth Accrual: In a smooth accrual retirement plan, employees accrue future pension benefits at a steady rate throughout their careers.

  • Unfunded Liability: The amount of benefits PERA members have earned that exceed the value of the funds in the system.

  • Vesting: Vesting is an employee’s right, usually earned over time, to receive some retirement benefits regardless of whether or not they remain with the employer.