Employee Retirement Calculation Methods

Employee Retirement Contribution Calculation Methods Submitted by Joe Flynn When we worked for the City, we used a wide array of acronyms; we spoke the language. So now we move into retirement and we have to learn a whole new language of acronyms. We have had to shift gears, a CD is no longer just a certificate of deposit, what we used to call a Blurb is now a Blog, and now we have email and snail mail - don't know whatever happened to Airmail. And the Pension Fund has acronyms too numerous to mention. But a few of them are worthy of attention, such as EAN and PUC. EAN (Entry Age Normal) and PUC (Projected Unit Credit) are terms that designate the method used to calculate how much the city and the employee must pay into the retirement fund to make sure that the benefits are there when the individual retires. Both methods can accomplish this goal but the timing of the payments is different. EAN is a straight line projection with the same percentage of payroll payment each year. PUC on the other hand, starts out as a lower percentage of payroll payment and then steadily increases over time. So, EAN is a level payment, and PUC starts out low but has higher payment in the future. SDCERS had, until 1991 used the EAN method. In that year, the Board agreed to change to the PUC method. And now, my friends, why do you suppose they did that? If you guessed it was because it resulted in an immediate reduction of pension fund payments required by the City, you are correct. Early reduction, higher payments in the future. In the Retirement Board's October discussion with the Actuary, we agreed to go back to the EAN method of calculating pension funding requirements. This will provide for level payments and will not shift the costs to the future. I have included an attachment that SDCERS Administrator David Wescoe provided to the Board for that discussion. It excerpts pertinent parts of the Vinson and Elkins report on this subject. I hope you find this information useful. Joe Flynn, Retiree Rep. to the Board
Attachment by SDCERS Administrator David Wescoe
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Employee Retirement Contribution Calculation Methods
Submitted by Joe Flynn

When we worked for the City, we used a wide array of acronyms; we spoke the language. So now we move into retirement and we have to learn a whole new language of acronyms. We have had to shift gears, a CD is no longer just a certificate of deposit, what we used to call a Blurb is now a Blog, and now we have email and snail mail - don't know whatever happened to Airmail. And the Pension Fund has acronyms too numerous to mention. But a few of them are worthy of attention, such as EAN and PUC.

EAN (Entry Age Normal) and PUC (Projected Unit Credit) are terms that designate the method used to calculate how much the city and the employee must pay into the retirement fund to make sure that the benefits are there when the individual retires. Both methods can accomplish this goal but the timing of the payments is different. EAN is a straight line projection with the same percentage of payroll payment each year. PUC on the other hand, starts out as a lower percentage of payroll payment and then steadily increases over time.

So, EAN is a level payment, and PUC starts out low but has higher payment in the future. SDCERS had, until 1991 used the EAN method. In that year, the Board agreed to change to the PUC method. And now, my friends, why do you suppose they did that? If you guessed it was because it resulted in an immediate reduction of pension fund payments required by the City, you are correct. Early reduction, higher payments in the future.

In the Retirement Board's October discussion with the Actuary, we agreed to go back to the EAN method of calculating pension funding requirements. This will provide for level payments and will not shift the costs to the future.

I have included an attachment that SDCERS Administrator David Wescoe provided to the Board for that discussion. It excerpts pertinent parts of the Vinson and Elkins report on this subject. I hope you find this information useful.

Joe Flynn, Retiree Rep. to the Board