Actuarial Report – An actuarial valuation is a type of appraisal which requires making economic and demographic assumptions in order to estimate future liabilities. The assumptions are typically based on a mix of statistical studies and experienced judgment.
California Rule – The California Rule is the result of a 1955 court case (Allen v. City of Long Beach) that concludes that an employee’s pension benefit as of the date of hire constitutes a contractual obligation. The California Supreme Court ruled that “Changes in a pension plan which result in a disadvantage to employees should be accompanied by comparable new advantages”. The 1955 ruling is currently being contested.
Defined Benefit Plan (DBP) – A type of pension plan in which an employer/sponsor promises a specified monthly benefit upon retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age.
Defined Contribution Plan (DCP) – A type of retirement plan in which a certain amount or percentage of money is set aside each year by a company (or employee) for the benefit of each of its employees. Benefits directly depend upon individual investment returns.
Discount Rate – Also known as the expected rate of return or the assumed rate of return. It is the estimated long-term average return expected to be earned on investments.
Employee Contribution – The portion of normal cost required to be paid by the employee, subject to the local agencies negotiated memorandums of understanding with applicable employee groups.
Employer Contribution – The portion of normal cost required to be paid by the employer, determined by periodic actuarial valuations under state law and based on the agency’s benefit formulas and employee groups covered.
Funded Ratio - Percentage of assets available today to pay all of the pension benefits promised to employees.
Normal Costs – The annual cost of service accrual for the upcoming fiscal year for active employees. The normal cost should be view as the long-term contribution rate for existing employees.
PEPRA - Public Employees’ Pension Reform Act of 2013 – A pension reform bill that went into effect January 1, 2013. The bill impacts new public employees and establishes a limit on the amount of compensation that can be used to calculate a retirement benefit.
Superfunded – A term used to describe periods in which total available CalPERS assets exceed the total CalPERS liability.
Unfunded Accrued Liability (UAL) – Portion of the plan’s unfunded liability that is not funded by the plan’s asset value.