Series 50: Funding A Pension Plan

Funding a Pension Plan

When determining the contributions needed to fund pension plans, most municipalities depend on actuarial valuations. There are several important concepts that you may need to know about actuarial valuations.

The amount that a municipality must pay annually is called the annual required contribution (ARC). ARC is equal to the normal cost of the pension plan plus the amortization payment used to pay down the unfunded actuarial accrued liability (UAAL).

ARC = current year’s cost + amortization payment of UAAL

The UAAL is the overall liability left to pay on the plan minus any funds set aside to prefund the benefits. In most cases, municipalities