South Carolina Retirement Systems

		Glossary 401(k) Savings Plan and 457 Savings Plan Tax-deferred savings plans, both of which are offered under 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 under 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. The dollar amount of up to 45 days of unused annual leave paid at retirement may be included before averaging the member’s 12 highest consecutive quarters of earnable compensation. 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 annuity 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 Effective July 1, 2003, The South Carolina Retirement Systems Claims Procedure Act 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 new 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 annuity benefit if a 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 Group Life Insurance benefits or retirement annuities. Correlated Systems SCRS and PORS 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 a retirement annuity within each respective system. The 12 highest consecutive quarters of earnable compensation in SCRS or PORS typically are used to calculate a member’s SCRS and PORS retirement annuity unless the service is concurrent (earned at the same time). GARS is also a correlated system in which the member’s years of service may be used to determine retirement eligibility, but not the AFC. Cost-of-Living Adjustment An adjustment of a salary or a retirement annuity intended to help offset the effects of inflation. Commonly referred to as COLA. COLAs are not guaranteed. Deferred Annuity An annuity for which one does not become eligible until some future date. Application must be made with the Retirement Systems to receive benefits. Defined Benefit Plan A retirement plan through which employers and employees contribute to a fund for which a clearly defined and guaranteed level of benefit will be paid to retirees. Promises specified annuity benefits, typically in the form of a monthly retirement pension based on levels of compensation and years of service. Contributions are actuarially calculated to provide annuity benefits. These annuity benefits are paid for a retiree’s lifetime. SCRS and PORS are defined benefit plans. Defined Contribution Plan A retirement plan through which employers and/or employees contribute to a fund for which only the contribution is defined and benefits will cease when contributions are exhausted. The level of retirement annuity may rise or fall based on investment performance. 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 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 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 Determination Provider This provider evaluates the Retirement Systems’ disability claims and submits a recommendation to the Retirement Systems’ Medical Board. Inquiries should be directed to the Retirement Systems’ Customer Services Department. Disability Retirement A retirement annuity under a defined benefit plan for active contributing members of the Retirement Systems who become disabled and whose disability is likely to be permanent. A member must apply while in service with a covered employer and must be approved for disability retirement benefits by the Retirement Systems. 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 State 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 enrolled after December 31, 2000, must have five years of earned service to be eligible to receive a service retirement annuity or a disability retirement annuity, to qualify a survivor for a monthly annuity 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 who is no longer employed by a public or governmental entity that participates in one of the South Carolina Retirement Systems’ plans and does not contribute a set percentage of his wages into a pension plan. 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 pension plan may apply for a deferred annuity (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 onetime, 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 or her wages towards the member’s pension 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 or her wages into a pension plan. A non-member does not earn service credit and is not entitled to a defined benefit retirement annuity unless he is already receiving an annuity due to past participation. Payment Plan A method of payment through which a member receives his retirement annuity and, depending on the plan chosen, may provide a survivor benefit to his designated beneficiary. The member selects a payment plan at retirement. SCRS and PORS retiring members may choose payment plans Option A, Option B or Option C. For more information about these payment plans, choose either SCRS or PORS. Pension Plan A defined benefit retirement annuity 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, 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 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 annuity. Commonly referred to as QDRO. This individual cannot receive his or her share of the member’s retirement annuity 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 lump-sum distribution of employee contributions and interest, which cancels all service credit and benefit rights. A refund is payable to a member after a minimum 90-day separation from service or to a beneficiary upon a member’s death. Retirement Annuity A monthly annuity payable to a member or his designated beneficiary. Retirement Systems This is 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). 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 political subdivisions. See SCRS for more information. South Carolina Retirement Systems This is the name commonly used to refer to the Retirement Division of the State Budget and Control Board. The Retirement Systems administers five 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. 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 or her retirement annuity 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 continue contributions during the period in which he or she is receiving Workers’ Compensation. An active member may also establish service credit for a leave-of-absence period during which the member is receiving Workers’ Compensation benefits. The cost is based on contributions plus interest using the member’s earnable compensation at the time of the injury. Employers should encourage members who are applying for disability retirement to do so as soon as possible and before being terminated from payroll. Yield Percentage of return on an investment.