KACo releases new public pension guide for county officials

Check out KACo's new guide to commonly-used pension terms designed specifically for county officials in Kentucky. Download the PDF here: KACo Public Pension Guide for County Officials

The Commonwealth provides pension and retiree health benefits for state and local government employees and retirees through six state-administered retirement systems. The Kentucky Retirement System (KRS) administers CERS, SPRS and KERS while the Judicial Form Retirement System (JFRS) administers JRP and LRP. The Teachers' Retirement System (TRS) is managed separately. 

Organizational Structure of Public Pension Programs in Kentucky

TERMS TO KNOW

Actuarial Value of Assets (AVA): The value of pension plan investments and other property used by the actuary to develop an actuarial valuation.

Actuary: Actuaries assess and project the financial condition of a pension plan and determine how much should be contributed to the plan each year to provide for the secure funding of benefits.

Annual Required Contribution (ARC): An employers' required contribution amount to the public pension system. For example, if the ARC rate is 25 percent, the employer contributes 25 percent of their employee's salary to the pension system.

Assumed Rate of Return (ARR): The average rate of return expected to be earned on investments in the long run.

Comprehensive Annual Financial Report (CAFR): Annual report that provides detailed information about the pension system's financial operations, including investment details, actuarial tables and statistical information.

Cost-of-living Adjustment (COLA): Periodic increase in the amount of a retiree’s or beneficiary’s pension payment in order to account for inflation.

Defined Benefit (DB) Plan: An employee group retirement plan that is designed to provide participants with a predefined, predictable and guaranteed benefit based on a formula.

Defined Contribution (DC) Plan: A pension plan that provides an individual retirement account for each participant with benefits based the amount contributed to the participant’s account plus income, expenses, gains, losses, etc.

Experience Study: Periodic review and analysis of the actual experience of the system- including actual rates of death, retirement, disability, or termination and salary increases - compared to the assumed values.

Funded Ratio: The ratio of the actuarial value of assets to the actuarial accrued liability.

Governmental Accounting Standards Board (GASB): An independent, private-sector organization that establishes accounting and financial reporting standards for U.S. state and local governments that follow Generally Accepted Accounting Principles.

GRS: Actuary firm working with the Kentucky Retirement System.

Inviolable Contract: Statutory guarantee that certain pension benefits for retirees and current employees cannot be changed.

Level Dollar Funding: Amortizes the cost of reducing the system's unfunded liability into equal dollar amounts over a fixed period of time (in contrast to the current system, based on a percentage of payroll).

Other Post-employment Benefits (OPEB): Benefits other than pensions that state and local governments provide to retired employees, including health care benefits.

Public Pension Oversight Board (PPOB): Assists the General Assembly with its review, analysis, and oversight of the administration, benefits, investments, funding, laws and administrative regulations, and legislation related to KRS.

Unfunded Liability/Unfunded Actuarial Liability (UL/UAL): The present value of benefits earned to date that are not covered by current plan assets.

Vesting/Vested: When an employee has reached a certain number of years of service to be eligible to receive a pension benefit, even if employment under the plan is terminated.