Washington State
Department of
Retirement Systems
Glossary
Annuity: The purchase of an investment that provides fixed payments that are predetermined and for a set amount of time.
Average final compensation (AFC): The monthly average of a member’s 60 highest paid consecutive service credit months.
COLA (Cost of Living Adjustment): In TRS Plan 2 and the Defined Benefit portion of TRS 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 TRS Plan 2, the defined benefit equals 2 percent × SCY × AFC. For TRS Plan 3, the defined benefit equals 1 percent × SCY × AFC.
Defined contribution: A retirement benefit that is based on the amount contributed and the performance of the investments chosen. Investment returns (both gains and losses) are applied to the account.
DRS: Washington State Department of Retirement Systems.
Gain Sharing: The 1998 Legislature passed a law that created 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 years of service. The legislation stated that gain sharing is not a contractual benefit and may be subject to future modification or elimination by the legislature.
The 2007 Legislature passed a law to end gain sharing after January 1, 2008. One final gain sharing distribution (if any) will be made on January 1, 2008 for members hired before July 1, 2007. The new law replaces gain sharing with an early retirement benefit for plan 2 and 3 members of PERS, SERS and TRS, and the choice of plan 2 or 3 for new SERS and TRS members first hired on or after July 1, 2007.
However, if a court of law decides the 2007 repeal of gain sharing is invalid, the reductions for early retirement that were in place before passage of the new law will apply. Additionally, if the court reinstates gain sharing, any new SERS or TRS members hired after that action would no longer have a choice between Plan 2 and Plan 3 and would be mandated into Plan 3.
Inflation: The general rise in the price of goods and services. Since 1926, inflation has averaged about 3 percent per year.
Minimum required distribution date: The IRS currently requires members in a qualified plan to begin receiving distributions from the plan by April 1 following the year in which the member attains age 70½ or when the member retires.
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 may decline in value or not grow as expected.
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 12 service credit months for each school year (September 1 through August 31) in which the member begins in September, works at least 9 months of the school year and earns at least 810 hours of compensation.
Service credit years (SCY): Service credit years are calculated by dividing total service credit months by 12.
TRS: Washington State Teachers’ Retirement System.
Weighted average contribution rate: 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.