Glossary

Annuitized payments: A series of periodic payments that typically continue over the lifetime of the recipient.

Average final compensation (AFC): The monthly average of a member’s 60 highest paid consecutive service credit months.

COLA (Cost of Living Adjustment): In PERS Plan 2 and the Defined Benefit portion of PERS Plan 3, on July 1 of every year following the first full year of retirement, the monthly benefit is adjusted by the percentage change in the Consumer Price Index (CPI-U, Seattle), to a maximum of 3 percent per year.

Defined benefit: A retirement plan in which the benefit is predetermined, also called a pension plan. For PERS Plan 2, the defined benefit equals 2 percent × SCY × AFC. For PERS Plan 3, the defined benefit equals 1 percent × SCY × AFC.

Defined contribution: A defined contribution plan benefit is based on the amount contributed and the performance of the investments chosen. Investment returns (both gains and losses) are credited to the account.

DRS: Washington State Department of Retirement Systems.

Gain sharing: If the Washington State Investment Board’s (WSIB) earnings on the PERS Plan 2 and PERS Plan 3 combined trust fund assets average more than 10 percent over a four-year period, half of the amount over 10 percent will be passed on to qualifying PERS Plan 3 members’ Defined Contribution accounts based on each member’s number of years of service.

Initial transfer window: The initial period during which members may transfer from PERS Plan 2 to PERS Plan 3, if they so choose. The initial transfer window for state agency and higher education employees was from March 1, 2002 through August 31, 2002. The initial transfer window for local government employees is from September 1, 2002 through May 31, 2003.

Inflation: The general rise in the price of goods and services. Since 1926, inflation has averaged about 3 percent per year.

Pension plan: A retirement plan with a predetermined benefit, the same as a defined benefit plan.

PERS: Washington State Public Employees’ Retirement Systems.

Portfolio: A collection of investments.

Return: A measure of investment performance that consists of interest, dividends, and gains or losses in the value of the principal. Returns can be positive or negative.

Risk: The uncertainty that your original investment will not grow as much as expected, or that it could decline in value.

Risk tolerance: Your willingness to accept declines in the value of your investments with the goal of achieving gains over a longer time period.

Service credit months: Members earn one service credit month for each calendar month in which they are compensated for 90 or more hours in an eligible PERS position. Members cannot earn more than one service credit month during one calendar month.

Service credit years (SCY): Service credit years are calculated by dividing total service credit months by 12.

Transfer payment: State agency or higher education employees who transferred from PERS Plan 2 to PERS Plan 3 during the initial transfer window (March 1, 2002 - August 31, 2002) and earned service credit in June 2002, will receive a transfer payment equivalent to 110 percent of their PERS Plan 2 account balance. Local government employees who transfer during the initial transfer window (September 1, 2002 - May 31, 2003) and have earned service credit in June 2002 or February of 2003, will receive a transfer payment equivalent to 111 percent of their PERS Plan 2 account balance. Transfer payments will be made in June 2003.

Weighted average: This average takes account of how long each rate was in effect by multiplying each historical rate by the number of days it was in effect, then dividing by the total number of days for which the average is being calculated.

WSIB: Washington State Investment Board.