A Plain Language Review of Pension Funding

A broad overview of the elements in pension funding prepares new legislators for making decisions on the State Pension System.

Topics that could come before the legislature this session include pension legislation relating to counties. One is shifting the actual normal costs of the teach pension system to school boards, and the other is a change in the contribution rates for county members of the state pension system.

Before session begins, legislators of the House and Senate pensions subcommittees are meeting. At the last meeting, the Department of Legislative Services provided new legislators with a report, Pension Funding in Plain Language. The report defines the terms of pension funding as an introduction for legislators making decisions about the State Retirement and Pension System.

The report begins with the basic equation of pensions and then breaks down the meaning of each term in the equation, including benefits, expenses, investments, and contributions.

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What Is the Normal Cost?

In a section about liabilities, the report shares this graph, which depicts the meaning of the normal cost. Normal costs are the sliver in the middle, the cost of benefits allocated to the current year.

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Normal costs could be the subject of legislative debate this year.

For more information, see the full presentation Pension Funding in Plain Language.