Pension Definitions

Active Member

A member of an occupational pension plan who is currently accruing benefits and/or paying contributions into their plan.

Actuarial Liability

The calculated value of a pension fund's financial liabilities including current and future benefit payments and expenses.

Actuarial Valuation

A review of the adequacy of a retirement plan's financing arrangement at a particular point in time. This valuation may serve as a basis for determining the amount of funding needed to provide benefits to employees and retirees covered by a defined benefit plan. The actuarial valuation is dependent on actuarial assumptions. It calculates the cost of benefits currently being earned, benefits due for past service, and benefits anticipated to be earned in the future. Public defined benefit plans must undergo an actuarial valuation at least once every three years, but may be made annually or biennially.

Actuarial Value of Assets

A calculation made by an actuary who is preparing an actuarial valuation on a defined benefit plan. This calculation assesses the value of a retirement plan's assets in a manner that reduces the volatility of short-term market fluctuations. An actuarial valuation should always state the method used to calculate the value of a plan's assets.

Amortization Period or Funding Period

The length of time required to eliminate a pension plan's unfunded liability based on current contributions from employers and active members. The Texas Pension Review Board has adopted guidelines, which state that the funding period for a public retirement system should never exceed 40 years. However, the PRB's preferred range is 25 to 30 years.

An amortization period may be fixed, rolling or variable:

  • A fixed amortization period means that all obligations of a retirement plan will be fully funded by a specific target date in the future.
  • A rolling amortization period means that a plan's obligations will never be fully funded, but that a constant amortization period will be preserved from year to year.
  • A variable amortization period means that the period can change either slightly or drastically from valuation to valuation.

As of Filing Date

The "as of filing date" is the last date on which a retirement plan submitted its statutorily-required report to the Texas Pension Review Board. Once every three years, public pension systems are required to employ an accredited actuary to value the plan's assets and liabilities. Those findings, including actuarial recommendations must be reported to the Texas Pension Review Board.

Defined Benefit Plan

A retirement plan whose benefits are defined by a specific formula based on an employee's compensation and/or number of years of service. The amount of the benefit is not a based on the amount of contributions or the plan's actual financial earnings on those contributions.

Defined Contribution Plan

A retirement plan providing benefits equal to the combined employer and employee contributions plus interest and minus administrative expenses.

Funding Ratio

The value of a pension plan's assets, expressed as a percentage of the plan's actuarial liability.

Liability Per Active Member

A calculation that reveals how much each active pension member would have to pay to fully fund the pension plan (the actuarial liability divided by the number of active members).

Unfunded Liability

The present value of a pension fund's future benefits (payable to the pension plan's participants) and fund administration expenses when the actuarial value of plan assets is taken into consideration.

 

 

 

 

 

 

 

Revised: May 06 2010