A new kind of 'ABCs' for members

Below is a useful glossary of terms found on the Kansas Public Employees Retirement System's (KPERS) website (http://www.kpers.org). While not all of the terms apply to our system (STRS), many of them do. Look it over; you may learn something you didn't know before. KBB

85 points: When a member's age and years of service combined equal 85, he or she can retire with full benefits. The member is said to "have 85 points."

A

Accumulated Contributions: The total amount of a member's contributions plus interest to the System that is credited to the member's account.

Accrued Interest: Interest accumulated on a bond since the last interest payment was made. The buyer of the bond pays the market price plus accrued interest.

Active Member: A member who has completed at least one year of continuous employment with a participating employer and is currently employed in a KPERS-covered position. KP&F, Judges and school members become active members immediately.

Actuary: Generally, an individual who calculates insurance and annuity premiums, reserves and dividends. The KPERS board has an actuary who makes annual valuations of the System’s liabilities and reserves and recommends the employer contribution rates to maintain the System's financial health. Every three years the actuary makes general investigation of the System’s actuarial experience including mortality, retirement and employment turnover.

Actuarial Present Value: A retirement benefit is a set amount of dollars per month. Its actuarial present value is the amount of money needed today, in a lump sum, to purchase a similar annuity in the marketplace. The calculation of present value is based on actuarial tables and factors including retirement age, the amount of benefit, average life expectancy based on insurance industry mortality tables, and assumed interest rates.

Additional Compensation: Compensation above regular wages. For example, sick leave, annual leave and overtime compensation.

Affiliation: When an employer becomes covered under one or more of the retirement systems administered by KPERS. Prospective employers must complete an application process to affiliate with KPERS.

Alternative Investments: Investments that do not trade publicly on an organized exchange. Examples include but are not limited to partnership funds that focus on private equity, venture capital, buyout, mezzanine financing, natural resources or hedge funds.

Annual Statement of Member Account: A report that advises members of their contributions on deposit, interest credited if applicable, their named beneficiary and estimated retirement benefit if vested.

Annualized: A rate of return expressed for a one-year period. For example, a fund that earned 3 percent for six months would have an annualized rate of 6.1 percent.

Asset Allocation: The process of evaluating how to distribute assets among different asset classes for investment purposes. KPERS invests in seven asset classes: domestic equity, international equity, fixed income, treasury inflation protected securities (TIPS), real estate, alternative investments and cash.

B

Basic Group Life Insurance: Active KPERS and Judges members and state and local employees in their “year of service” have basic group life insurance. The death benefit is 150 percent of annual compensation.

Brazelton Member: A particular type of KP&F member whose contribution is lower and benefits are offset by Social Security.

Basis Point: One one-hundredth of one percent, i.e., 100 basis points = 1 percent.

Benchmark: A comparative group of assets that is used to fairly measure the performance of a given portfolio. Typically benchmarks have similar risk characteristics to the given portfolio so returns can be compared. Some common benchmarks include the Russell 1000, the Lehman Aggregate Bond Index and the S & P 500.

Beneficiary: A person, trust or estate named by a member to receive benefits after his or her death.

Benefit Formula: Retirement benefits are based on the following formula set by Kansas law. Member’s final average salary x percentage x years of service = annual benefit at normal retirement age.

Bond: An interest-bearing or discounted certificate of debt issued by such entities as corporations, municipalities, and governments and their agencies.

Buy-Up Public Service: Before 1998 the out-of-state public service credit multiplier was 1 percent. Members have a one-time option to “buy-up” or pay the additional 0.75 percent to increase the multiplier to 1.75 to be used in their retirement benefit calculations.

C

Cash Equivalents: Fixed income securities having a maturity of less than one year from the date of purchase, for example: treasury bills, repurchase agreements, certificates of deposit, demand notes, commercial paper and bank-pooled trust funds.

Certificate of Deposit: A receipt from a bank for funds deposited for a stated period of time and normally paying a stated rate of interest.

Compensation: All salary, wages and other money payable to a member for duties performed for a participating employer but not including reimbursement for travel or moving expenses.

Contingent Beneficiary: A person, trust or estate to receive all benefits if no primary beneficiary is living when a member dies.

Contributions: KPERS benefits are funded by a combination of sources. Employers and employees pay money (contributions) into the System and the System then invests the funds. Benefits are funded with investment returns from the contributions.

Cost of Living Adjustment (COLA): An increase in monthly pension benefits given at the direction of the Legislature in an effort to help benefits keep pace with inflation.

Covered Retirement Position: An office or position that is not temporary or seasonal and requires at least 1,000 hours of work per year. School employees are required to work at least 630 hours per year.

Credited Service: The total years of participating service and prior service, not including any service that is credited under another retirement plan.

D

Death Benefit: When a retiree dies, his or her beneficiary receives a $4,000 lump-sum payment. A retiree can also name a funeral establishment to receive this payment.

Death Certificate: A legal document verifying the death of a retiree or member. KPERS requires a certified copy before paying a death benefit.

Death Notice: Contact notifying KPERS of a member's death. The notice should include the member's full name, social security number, spouse's name and address, if the check was going to the bank, the date of death, the name of the person who contacted us and their address, phone number, and the date we were notified.

Defined Benefit Plan: A retirement plan (like KPERS) that bases retirement benefits on a formula including age, years of service and final average salary. Benefits are guaranteed.

Defined Contribution Plan: A retirement plan (unlike KPERS) that bases retirement income entirely on the performance of investment choices selected by the member.

Dependent: A parent or child of a member who is dependent upon the member for at least one-half of his or her support.

Designated Agent: An individual assigned by a participating employer who serves as a liaison for KPERS transactions and communication.

Direct Deposit: Instead of mailing retirees checks, KPERS can deposit monthly retirement benefits right into their accounts. Deposits are made on the last working day of the month.

Disability Benefit: A benefit paid to active members when they are totally disabled and unable to work at any job for which they are qualified for based on education, training or experience. Disability coverage ends with retirement.

Diversification: Including of a number of different investment types in a portfolio to increase returns or reduce risk.

Dividend: A payment to owners of common or preferred stock. Dividends are usually paid out of the current earnings of a corporation. On preferred stock shares, the dividend is usually a fixed amount. On common stock shares, the dividend may vary with corporate earnings. Dividends are usually declared and paid quarterly.

Domestic Equity: Stock shares that represent ownership in United States companies.

E

Early Retirement Age Factor: Active members may retire early with reduced benefits. Early factors are used for the purpose of determining early retirement benefits. Each age has a corresponding percentage factor that determines benefit reduction.

Early Retirement Date: Depending on which retirement system a member belongs to, it is the date at which he or she can retire with reduced benefits.

Electronic Funds Transfer (EFT): KPERS retirement benefits are directly deposited into a member's account at a financial institution by electronic transmission according to a routing code and account number, instead of a paper check.

Eligible Plan: For money to maintain tax-deferred status when coming into or going out of a member's Retirement System account, it must come from or go into a plan deemed acceptable by the Internal Revenue Service. Such plans include a: 401(a) tax-qualified plan, 401(k) profit-sharing plan, 403(a) annuity, 403(b) annuity, 408(a) individual retirement account, 408(b) individual retirement annuity and 457(b) governmental deferred compensation plan.

Employee: Any appointed or elective officer or employee of a participating employer whose employment is not seasonal or temporary, and whose employment requires at least 1,000 hours of work per year. School employees must work 630 hours per year.

Employer Contribution Rate: The percentage of payroll that employers pay toward their employees’ Retirement System benefits and varies among employers in the System.

Employer Pick Up: A plan that excludes employee contributions from gross income for federal income tax purposes.

Entry Date: The date which an eligible employer joins the Retirement System.

Equities: Stock shares that represent ownership of a corporation. Included in this category are publicly traded common stocks, rights, warrants, convertible securities and American Depository Receipts.

Estate: All property and debts left by a deceased person managed by an executor chosen by the deceased.

Excess of Contributions: If a retiree dies before he or she has collected all of the money he or she has paid into the KPERS system, there is an excess of contributions left over to be paid out to the beneficiary.

F

Fiduciary: Relating to someone who holds something in trust for another.

Final Average Salary: Final average salary is one of the factors used when calculating retirement benefits. The method of calculation varies between the three retirement plans that KPERS administers.

KPERS:

If your membership date is before July 1, 1993, or you were in your "year of service" waiting for membership on July 1, 1993, your final average salary is either:

• An average of your four highest years of salary, including additional compensation, such as sick and annual leave; or
• An average of your three highest years of salary, excluding additional compensation, such as sick and annual leave.

KPERS will use the salary average that benefits you most.

If your membership date is July 1, 1993, or after, your final average salary is:

• An average of your three highest years of salary, excluding additional compensation, such as sick and annual leave.

KP&F:

If your membership date was on or after July 1, 1993, your final average salary is an average of the three highest of your last five years of service, excluding additional compensation, such as sick and annual leave.

If your membership date was before July 1, 1993, your final average salary is an average of the three highest of your last five years of service, including additional compensation, such as sick and annual leave.

Judges:

Your final average salary is an average of any three of your last ten years of service.

Fireman: An employee assigned to the fire department whose principal duties are engagement in the fighting and extinguishment of fires and the protection of life and property therefrom and who is specifically designated, appointed, commissioned or styled as such by the governing body or city manager of the participating employer and certified to the Retirement System as such.

Fiscal Year: An accounting period covering 12 consecutive months, i.e. the State of Kansas' fiscal year is July 1 of any year to June 30 of the next.

Fixed Income: Debt instruments of corporations, government or agencies characterized by a fixed interest rate and stated maturity date. Included are marketable bonds, cash equivalents and guaranteed investment contracts. Certain fixed income assets such as cash equivalents are often categorized separately.

Forfeited Service: Credited years of employment which a member "gives up" by terminating covered employment and withdrawing his or her accumulated contributions and interest.

Full-time Student: A student classified as full-time according to the policy of the accredited high school, vocational or technical school, or college or university in which the student is enrolled.

G

Gross Income: Total compensation before any deductions like Social Security or state taxes.

Group Health Insurance (GHI): Health insurance purchased by state employees for a fee after they have retired.

Growth: An equity investment style that seeks investments with potential for sales or earning growth in excess of the market average. From an analytical perspective, growth portfolios will generally exhibit projected earnings, price to earnings ratios, price to book ratios, and a five-year earnings growth rate greater than the index.

Guardianship: A legal appointment granting an individual the legal right to do business for a member or minor (similar to a power of attorney). We must have certified copy of documents in file.

H

I

Inactive Member: A member who is no longer employed with a KPERS-affiliated employer, but chose to leave his or her contributions with the Retirement System when he or she ended employment.

Inflation: A persistent, substantial rise in the general price level, resulting in a decline in purchasing power.

Interest Rate: Cost of money or credit expressed as a percentage rate per period of time, usually one year.

International Equity: Shares that represent ownership in companies domiciled outside the United States.

J

Joint and Survivor Options: Retirement benefit payment options. A member receives a reduced benefit for life, and after his or her death, his or her “survivor” continues to receive a benefit. The survivor option can be 50 percent, 75 percent or 100 percent of the member’s benefit amount.

Joint Annuitant (JA): This is an individual chosen by the retiree at the time of retirement who will receive a monthly benefit after the retiree passes away. The monthly benefit will continue until the JA dies.

K

L

Large Capitalization Domestic Equity: Typically defined as a company with a market capitalization (shares x share price) in excess of $5 billion.

Last Day at Work: The last whole or portion of a day the member or eligible employee was physically on the job in the actual performance of work which entitled the member to compensation.

Last Day on the Payroll: The last whole or portion of a day the member or eligible employee was entitled to be compensated. The day before the employee was separated or became inactive.

Leave of Absence: A period of absence from employment without pay, authorized and approved by the employer and which, after the effective date, does not exceed one year.

Life-Certain Option: A retirement benefit payment option. A member receives a reduced benefit for life. If he or she dies within a guaranteed period of time from retirement, his or her beneficiary will receive the same monthly benefit for the rest of the guaranteed period.

M

Market Value: At any point in time, the market value of an asset is the highest price a buyer pays and the lowest price at which a seller will liquidate. In practice, publicly traded stocks are valued at the day's closing price and bonds are generally valued at the day's final bid price. Different pricing services can result in different market prices especially in the bond market.

Maturity: The date on which a bond becomes due and the issuer redeems or pays the face value (principal).

Maximum Benefit: The retiree receives the maximum possible lifetime monthly benefit possible with no continued monthly benefit when he or she dies.

Membership Date: Membership date can be different for different employers. For schools and KP&F, it is the date the employee is hired. For local government under regular KPERS, the membership date is one year after hire date and the beginning of the payroll period following the year of service.

Military Leave: A time period served in the Armed Forces of the United States on active duty.

N

Normal Retirement Date: The date on or after which a member may retire with eligibility for retirement benefits for age and service.

O

Off the Payroll: The member or eligible employee is not eligible to be compensated for any portion of a particular day. If the employee is off the payroll, he/she is inactive and separated. Being off or separated from the payroll does not mean or imply termination of employment.

On the Payroll: The member or eligible employee is entitled to be compensated for all or a portion of a particular day.

Optional Group Life Insurance: Many participating employers affiliate with KPERS to provide extra life insurance in addition to the basic group life insurance available to all members. The member pays for this additional insurance. Coverage amounts range from $5,000 to $250,000 effective January 1, 2004.

P

PLSO, Partial Lump-Sum Payment Option: Members can choose to take up to 50 percent of their retirement benefits in an up-front, lump-sum payment and receive the balance of their benefits in reduced monthly payments.

Partial Year of Service: Members earn service credit for the years they’ve been with any employer contributing to KPERS. State and local employees work one year before becoming a member. If they leave employment before working one full year, these months are called a partial year of service. Should a member return to KPERS in the future, he or she can purchase this partial year of service to increase his or her service credit amount.

Participating Employer: An eligible employer who has agreed to make contributions to the System on behalf of its employees.

Participating Service: The period of employment or approved disability after the entry date for which credit is granted a member.

Payroll: An employer's list of those employees entitled to compensation for all or a portion of that period.

Payroll Period: A period of calendar time established by the employer for which the employee's compensation for services will be paid. A payroll period is usually weekly, biweekly, semi-monthly or monthly.

Police Officer: An employee assigned to the police department whose primary duties are engagement in the enforcement of law and maintenance of order within the state and its political subdivisions including sheriffs and sheriffs deputies, who has successfully completed the required course of instruction for law enforcement officers approved by the Kansas Law Enforcement Training Center.

Pop-Up Feature: The pop-up feature is part of the joint-survivor retirement payment option. A retiree receives a reduced monthly benefit and chooses someone to receive a benefit after he or she dies. If that person dies first, the retiree’s benefit increases to his or her original maximum option amount. This is called the pop-up feature.

Portability: Members who have contributed to more than one plan in the Retirement System can use their service credit in either retirement plan.

Power of Attorney (POA): A legal document granting an individual the ability to make decisions for the retiree, joint annuitant, a minor or beneficiary. They have the right to make address changes, bank changes and make inquiries on behalf of the retiree. KPERS must have a certified copy of this document on file.

Primary Beneficiary: A person, estate or trust that receives all benefits payable from KPERS when a member dies.

Prior Service: A member's employment period before his or her membership date.

Prudent Expert Standard: by state law, KPERS Board of Trustees uses the prudent expert standard to direct their actions in managing System assets. This standard is defined in federal legislation called the Employee Retirement Income Security Act. ERISA requires that a fiduciary manage a portfolio “with care, skill, prudence, and diligence, under the circumstances then prevailing, that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”

Purchased Service Credit: KPERS allows members to purchase service credit by making additional contributions to the System for years of service they acquired while working in a non-KPERS public-service related job. Certain restrictions apply.

Q

Qualified Domestic Relations Order: A court order that divides marital assets when people divorce. These martial assets can include KPERS contributions and benefits.

R

Reasonable (as it pertains to a portfolio risk level relative to the Index): A reasonable risk level relative to the Index means that, if portfolio risk is substantially above the risk of the Index, portfolio return should also be substantially above the return of the Index. Conversely, if portfolio return is substantially less than the Index, then portfolio risk would also be expected to be less than that of the Index. Under normal market conditions, reasonable means a combination of risk and return that yields a Return to Risk Ratio for the portfolio that is equal to or greater than that of the Index which serves as the portfolio's performance benchmark.

Request for Special Voucher: Paper work done to request a warrant outside of the monthly cycle, for payment of a monthly benefit, death benefit, or excess contributions.

Retiree/Retirant: The member, once employed by a KPERS participating agency, who has retired and currently receives a monthly benefit.

Retirement Benefit: A monthly income with benefits accruing from the first day of the month coinciding with or following retirement and ending on the first day of the month in which death occurs or the actuarial equivalent paid at the discretion of the Board.

Retirement Number: Identification number we use to identify members. This number begins with a letter that identifies the type of position the member held before retirement. We issue one to every member when they retire.

Revoked Legislative Service: When elected, legislators have the option of joining KPERS. If a legislator chooses not to join and then is not re-elected or has a break in legislative service, then comes back to the Legislature, he or she has another chance to join. If he or she joins KPERS at that time, he or she may then buy that earlier period of service credit, called revoked legislative service.

S

Seasonal Position: A position of less than six months continuous duration, which recurs on a regular time cycle.

Service-Connected: A death or any physical or mental disability resulting from external force, violence or disease occasioned by an act of duty.

Service Credit: Years of employment that are included in a members retirement benefit. It includes prior service, participating service and purchased service.

Small Capitalization Domestic Equity: Typically defined as a company with a market capitalization (shares x share price) between $250 million and $1 billion.

Social Security: The old age, survivors and disability insurance section of the Federal Social Security Act.

Special Member: A KP&F member who chose to stay under the provisions of his or her local plan when the employer joined KP&F.

Spousal Consent Law: A spouse's signature is required if a member chooses any KPERS benefit option under which his or her spouse would receive less than 50 percent of the total monthly benefit after the member's death.

Statutory Multiplier: Retirement benefits are based on a formula set by Kansas law. Member’s final average salary x percentage x years of service = annual benefit at normal retirement age. The “percentage” in the formula is a multiplier also set by Kansas law. The multiplier varies by retirement plan and service credit type.

T

Temporary Position: A non-recurring position of not more than 180 days or six months duration. A position of this type, for example, may by created specifically to complete a special project of short duration.

Term Life Insurance: Life insurance that provides protection only for a specified period of time.

Termination Pay: Compensation an affiliated employer pays an employee for unused sick leave, annual leave, comp time, etc., when the employee terminates employment.

TIAA-CREF: Teachers Insurance and Annuity Association College Retirement Equities Fund, a retirement plan for university employees. Kansas state universities were previously with TIAA-CREF and are now part of KPERS. If a university employee left employment before the transition and returned afterward, he or she may purchase his or her previous service credit under TIAA-CREF.

Tier I KP&F Member: A member of the Kansas Police and Firemen’s Retirement System who was hired before July 1, 1989, and did not choose to become part of Tier II KP&F on July 1, 1989.

Tier II KP&F Member: A member of the Kansas Police and Firemen’s Retirement System who was hired on or after July 1, 1989. All new members are automatically Tier II members in KP&F.

Time-Weighted Rate of Return: The amount and timing of cash flows do not impact time-weighted rates of return since the returns for each sub-period are equally weighted. Since investment managers have little control over cash flow, time-weighted returns are an appropriate method of analyzing the manager's performance.

Total Accumulated Member Contributions: The entire amount, to-date, that a member has contributed into the Retirement System. This amount, with interest, would be returned if a member chose to withdraw from the System after ending employment.

Total Fund: All assets of the fund including equities, fixed income, cash equivalents, cash and other securities.

Total Rate of Return: The "bottom-line" rate which reflects the combination of income and appreciation (or depreciation) as well as realized and unrealized capital gains.

Transfer Member: A KP&F member who is a former member of a local plan who elected to participate in KP&F.

Trailing Period: A time period that immediately preceded a specified date. For example, as of December 31,1991, the trailing nine months would include the period April 1,1991, to December 31, 1991.

Trust: A legal entity created by a grantor for the benefit of designated beneficiaries. A retiree may designate a trust as the beneficiary for his or her $4,000 death benefit.

U

Unfunded Liability: The financial obligation for service already rendered by former and present employees. The amount of this obligation not covered by System assets represents the “unfunded liability.” An unfunded liability typically comes about when benefits are increased without immediate funding.

Unannualized: A rate of return for a period of less than one year or greater than one year. An unannualized return may represent results that are for a month, quarter, five quarters or any other non-12-month period.

V

Vested: When a member earns enough service credit to guarantee retirement benefits even if he or she leaves covered employment and keeps his or her contributions with the System.

VISTA service: (Volunteers In Service To America) places individuals with community-based agencies to help find long-term solutions to the problems caused by urban and rural poverty, similar to the Peace Corp but in the United States instead of abroad. Years of VISTA service may be purchased to use as KPERS service credit.

W

Withdrawal: When a member leaves KPERS-covered employment and takes all of his or her KPERS contributions plus interest. In doing so, he or she forfeits any future benefits.

Whole Life Insurance: Life insurance that provides coverage for an individual's whole life, rather than a specified term. A savings component, called cash value or loan value, builds over time and can be used for wealth accumulation.

X

Y

Year of Service: The one year of continuous employment required for non-school KPERS employees to become a member.

Z