Glossary
401(k) Savings Plan and 457 Savings Plan
Tax-deferred savings plans, both of which are offered by the South Carolina Deferred Compensation Program. Both plans allow employees to set aside tax-deferred dollars from their pay and decide how to invest that money in the funds offered by the plans. The names “401(k)” and “457” come from the portion of the Internal Revenue Code from which these plans were created.
AICPA PFP
Designation for an American Institute of Certified Public Accountants (AICPA) Professional Financial Planner. This person is a certified public accountant who has earned the financial planner designation from the AICPA.
Annuity
A contract, usually issued by an insurance company, that generally provides for the accumulation of contributions and a guaranteed income paid at regular intervals, usually monthly, for a specified period of time or for life. Many annuity contracts have significant mortality charges.
Asset Allocation
The process of putting investment funds in different kinds of categories of assets such as stocks and bonds. Asset allocation affects both risk and return, and is a central concept in personal financial planning and investment management.
Asset Classes
A type of investment, such as stocks, bonds, or cash equivalents.
Average Final Compensation (AFC)
Average final compensation (AFC) is the 12 highest consecutive quarters of a member’s earnable compensation divided by three. Only an amount up to and including 45 days' pay for unused annual leave from a member's last termination payment shall be included before averaging the member’s AFC. Elected officials may use 36 consecutive months in place of the 12 highest consecutive quarters.
Beneficiary or Beneficiary Payee
A person who is designated to receive, or is receiving, a retirement or other benefit provided by the South Carolina Retirement Systems.
Capital Appreciation
An increase in the value of a stock.
Cash Equivalents
Instruments or investments that are easily turned into cash and are so safe that they are virtually as good as cash. Examples are money market funds, Treasury bills, and stable value funds.
Claims Procedure Act
The South Carolina Retirement Systems Claims Procedure Act of 2003 provides remedies available in a dispute or controversy between the Retirement Systems and a member or a designated beneficiary of a member of any of the retirement systems established in Title 9 of the SC Code of Laws. The claims procedure sets a one-year statute of limitations, limits retroactive relief to one year, and prohibits class action lawsuits. It also provides an appeals process for members whose disability retirement applications or continuing disability reviews have been denied.
Contingent Beneficiary
A person who will receive a refund or monthly benefit if the primary beneficiary of an active member dies or otherwise loses rights as a beneficiary. Contingent beneficiaries may be designated for active member survivor benefits; however, they may not been designated for active or retired incidental death benefits, or retirement benefits.
Correlated Systems
SCRS, the Police Officers Retirement System (PORS),and the General Assembly Retirement System (GARS), are correlated systems. If a member has contributions in more than one of these retirement systems, the member’s service credit is maintained separately within each system; however, the member’s service credit is added together to determine the member’s eligibility for retirement benefits.
Cost-of-Living Adjustment
An adjustment of a salary or a retirement benefit intended to help offset the effects of inflation. Commonly referred to as COLA.
Deferred Annuity
An annuity for which one does not become eligible until some future date.
Defined Benefit Plan
In a defined benefit plan, the plan bears the investment risk and provides a guaranteed monthly benefit based on a statutory formula, not on your account balance. SCRS and PORS are defined benefit plans.
Defined Contribution Plan
In a defined contribution plan, you invest your funds within the plan’s investment options and then you bear the risk, or enjoy the benefit, based on the performance of your individual investments. Your retirement benefit is limited to the balance in your account when you retire. The State ORP and the South Carolina Deferred Compensation Program’s 401(k) and 457 plans are defined contribution plans.
Direct Rollover
The taxable portion of a retirement plan distribution (refund) may be eligible for a tax-deferred rollover to an Individual Retirement Account (IRA), a 401(k) plan, a 401(a) plan, a 403(b) plan, or a 457 plan. Check with the receiving plan administrator to determine if it will allow such a rollover. Surviving spouses have the same rollover choices as members. Members or alternate qualified domestic relationship order (QDRO) payees may elect to roll over all or any part of the taxable portion of the member’s contributions plus interest. The payment received from the Retirement Systems is classified as a qualified total distribution under Internal Revenue Code Section 401(a) and will be reported to the IRS on Form 1099-R.
Disability Retirement
A retirement benefit for which active contributing members of the Retirement Systems may apply if they become physically or mentally incapable of performing the regular duties of their job and their disability is likely to be permanent. A member must apply for disability retirement before he leaves covered employment.
Distribution
A cash payment or an annuity payment.
Diversification
An investment strategy that can reduce market risk by combining a variety of investments, such as stocks and bonds, which are unlikely to all move in the same direction at the same time.
Dividend
A periodic payment or distribution of earnings made by a company to stockholders.
Earnable Compensation
A rate of compensation purely for working one’s full normal time, not amounts paid on a cash basis. When compensation includes maintenance, fees, and other things of value, the SC Budget and Control Board shall establish the monetary value of such compensation.
Earned Service
Paid employment as an employee during which regular contributions are paid to the Retirement Systems. Members must have five years of earned service to be eligible to receive a service or disability retirement benefit, to qualify a survivor for a monthly benefit after an in-service death, or to receive a supplemental minimum benefit under SCRS.
FICA
Federal Insurance Contributions Act (Social Security and/or Medicare).
Fixed Income
A security that pays a specific interest rate.
Guaranteed Investment Contract (GIC)
A “promise to pay” issued by an insurance company, usually in a large amount. The insurance company guarantees the interest rate paid on the amount promised but does not guarantee the principal. GICs are not guaranteed by a government agency. Many defined contribution plans, such as 401(k) plans, offer GICs as investment options.
Inactive Member
A member of the Retirement Systems becomes an inactive member when no contributions to his account have been reported for one full fiscal year (July 1-June 30). An inactive member may not purchase service credit or apply for disability retirement; however, an inactive member who has not withdrawn his contributions and interest from the retirement plan may apply for a deferred retirement benefit (if eligible) upon reaching retirement eligibility. For more information, choose either SCRS or PORS, or Inactive Account Search.
Income
Money earned through investments.
Inflation
The loss of purchasing power that results from a general increase in the price of goods and services.
Interest
The fee charged by a lender to a borrower for using borrowed money. The fee is usually expressed as an annual percentage of the amount borrowed. The interest rate depends on how long the money is being borrowed, the likelihood that the borrower will repay the loan, and the current inflation rate.
IRC Section 401(a)
Tax code section authorizing a qualified retirement plan to be operated and supported by an employer and to provide retirement benefits.
Lump-Sum Distribution
A one-time, total distribution of a member’s contributions and interest from a qualified plan. Refund payments are considered lump-sum distributions.
Member
A member is an employee of a public or governmental entity who participates jointly with his employer in one of the South Carolina Retirement Systems’ plans by contributing a set percentage of his earnable compensation towards the member’s retirement plan.
Non-Member
A non-member is an employee of a public or governmental entity that participates in one of the South Carolina Retirement Systems’ plans, but either elects not to or is not required to contribute a set percentage of his earnable compensation into a retirement plan. A non-member does not earn service credit and is not entitled to a defined benefit retirement benefit unless he is already receiving a benefit as a result of past participation.
Payment Option
A method of payment through which a member receives his retirement benefit and, depending on the option chosen, may provide a survivor benefit to his designated beneficiary. The member selects a payment option at retirement. For more information about these payment options, choose either SCRS or PORS.
Pension Plan
A defined benefit retirement plan under one of the following: the South Carolina Retirement System; the Police Officers Retirement System; the General Assembly Retirement System; or the Judges and Solicitors’ Retirement System.
Police Officers Retirement System (PORS)
The name of the retirement system covering police officers, firefighters, peace officers, coroners, probate judges, and magistrates. See PORS for more information.
Pre-Tax
Any type of contribution or compensation deducted from gross pay before earnings are taxed. Commonly referred to as tax-deferred.
Prospectus
A formal written document relating to the offering of a new or existing security that delineates the offeror’s business plan and is needed by the investor to make an informed decision concerning investment in the security.
Qualified Domestic Relations Order (QDRO)
A court order that recognizes or creates a spouse’s or a former spouse’s right to a portion of a member’s retirement benefit. Commonly referred to as QDRO. This individual cannot receive his or her share of the member’s retirement benefit until the member retires, withdraws the contributions, or dies. A divorce decree that assigns this portion to an ex-spouse is not necessarily a valid QDRO. Direct payment by the Retirement Systems is not possible unless the court enters an order that the Retirement Systems determines is acceptable under its guidelines pursuant to S.C. Code Ann. 9-18-10 (supp. 2000).
Qualified Plan
The South Carolina Retirement Systems’ retirement plans are qualified plans under section 401(a) of the Internal Revenue Code. The term also refers to other retirement plans that are qualified by the IRS.
Refund
A distribution of employee contributions and interest in a lump-sum payment, rollover payment to another qualified retirement plan, or a combination of lump-sum and rollover payments.
Retirement Benefit
A monthly benefit paid to a member or his designated beneficiary.
Retirement Systems
The informal name used by the South Carolina Retirement Systems.
Rollover
A tax-deferred transfer of funds from one qualified retirement plan to another (see Direct Rollover).
Roth 401(k) Savings Plan
After-tax retirement savings plan offered by the South Carolina Deferred Compensation Program. This plan allows employees to set aside after-tax money that they will be able to access tax-free in their retirement. The name “401(k)” comes from the portion of the Internal Revenue Code from which this type of plan was created.
Service Credit
A member’s earned service, prior service, and/or purchased service.
Single-Sum Distribution
Non-periodic distribution from a qualified retirement plan received before an annuity start date. TERI payouts are considered single-sum distributions.
South Carolina Retirement System (SCRS)
This is the name of the retirement system covering state employees, public school employees, public higher education personnel, and employees of other local subdivisions of government. See SCRS for more information.
South Carolina Retirement Systems
This is the name commonly used to refer to the Retirement Division of the SC Budget and Control Board. The Retirement Systems administers six distinct retirement plans.
State Optional Retirement Program
A defined contribution retirement plan offered as an alternative to SCRS. The State Optional Retirement Program (State ORP) is available to all state, public school, and higher education employees hired after June 30, 2003. This includes all permanent full-time employees, temporary and part-time employees and political appointees. An employee has 30 days from his date of hire to choose which retirement plan to join. If an employee does not make a selection, he will automatically become a member of SCRS.
Tax-Deferred
Any type of contribution, compensation, or investment that is not taxed until the member receives the funds according to the program’s guidelines.
Teacher and Employee Retention Incentive (TERI) Program
Active SCRS members eligible for service retirement may participate in the TERI program, which allows an SCRS member to retire and begin accumulating his retirement benefit on a deferred basis without terminating employment. SCRS members must file a retirement application to elect TERI participation, select a payment plan, and designate retirement beneficiaries.
Volatility
The relative rate at which the price of a security moves up and down.
Workers’ Compensation
A program through which an employee may receive compensation in the event of an accidental, employment-related injury. An active member may establish service credit for a period while on leave of absence and receiving workers’ compensation benefits. The cost is based on contributions plus interest using the member’s earnable compensation at the time of the injury. Members may also arrange in advance with their employer to continue contributing to their account while they are receiving workers' compensation benefits.
Yield
Percentage of return on an investment.