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Glossary of Pension Terms
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Affordability
Measures the affordability of the pension systems. Affordability risk measures the chance that pension contributions will cross certain thresholds with regards to the general fund and contribution rates.
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Current Law
Scenarios in which assumptions about Legislative behavior are excluded. These scenarios show projections regarding the current state of Washington statutes.
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Optimistic
A measurement of the pension system under favorable conditions (above expected investment returns, for example). Optimistic refers to the 75th percentile, where there is a 25 percent chance of the measurement being better and 75 percent chance of the measurement being worse. Very optimistic refers to the 95th percentile.
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P
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Past Practices
Scenarios in which assumptions regarding Legislative behavior are introduced. These assumptions include actual contributions below what are actuarially required and improving benefits over time. These scenarios are meant to project past behavior into the future.
Pay-Go
The trust fund runs out of assets and payments from the general fund must be made to meet contractual obligations.
Pessimistic
A measurement of the pension system under unfavorable conditions (below expected investment returns, for example). Pessimistic refers to the 25th percentile, where there is a 75 percent chance of the measurement being better and 25 percent chance of the measurement being worse. Very pessimistic refers to the 5th percentile.
Premature Pay-Go
Pay-go payments, measured in today’s value, which might be considered “significant” in terms of the potential impact on the general fund.
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R
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Risk
Measures the risk metrics of the pension systems, including the chance that the pension systems will prematurely run out of assets, the amount of potential pay-go contributions, and the chance that the funded status will cross a certain threshold.
Risk Tolerance
The amount of risk an individual or group is willing to accept with regards to the likelihood and severity of unfavorable outcomes.
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