Retirement insights from a Colorado PERA perspective

Actuarial Value of Assets

A market-related value, which recognizes the differences between actual and expected investment experience over a four-year period.

Amortization Period

Projected number of years until full funding status is achieved.

Asset Allocation

The amount of a fund allocated to certain asset types (e.g. public equities, fixed income, private assets).

Asset Class

A category of investments that share certain characteristics and exhibit similar patterns of return.

Assumed Rate of Return

The long-term annualized investment return required to meet all future benefit payments.

Automatic Adjustment Provision

An automatic change to PERA contributions (employer, employee, state direct distribution) or the Annual Increase based on funding levels.

Basis Points

Hundredths of one percent. 100 basis points = 1%.

Benchmark

The performance objective or standard used to define the return against which another portfolio is to be evaluated.

Carried Interest

The percentage of investment profits above a pre-specified threshold paid to a General Partner.

Defined Benefit

A mandatory retirement savings plan in which a participant’s future benefits are known or can be calculated, but contributions are subject to adjustments.

Defined Contribution

A voluntary plan in which participants can save pre-tax income for retirement. Contributions are “defined” by the employee, but the future benefit is not guaranteed.

Demographic Assumptions

Statistics about PERA members used when calculating expected future benefit payments.

Diversification

A strategy of reducing exposure to risk by combining a wide variety of investments within a portfolio.

Fixed Income

Securities representing debt obligations and usually having fixed interest payments and maturities. Different types of fixed income securities include government and corporate bonds, mortgage-backed securities, asset-backed securities, and may also include money market instruments.

Gross-of-Fees

Return that does not account for fees or expenses related to managing the investment(s).

Net-of-Fees

Return that incorporates investment management fees, carried, interest, and other fees. Lower than a Gross-of-Fees return.

Private Equity

Equity capital that is not quoted on a public exchange. The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time.

Public Equity

Shares that trade on public exchanges or “over-the-counter.”

Target Date Fund

An investment that adjusts asset allocation over the life of the fund from higher risk/return to lower risk/return as the Target Date approaches.

Time-Weighted Rate of Return

Compound growth of a fund or portfolio, calculated so that it is comparable to market benchmarks or other funds.

Total Fund

The combined assets of all division trust funds (defined benefit) across asset classes.

Unfunded actuarial accrued liability

The present value of expected benefit payments in excess of the actuarial value of PERA’s assets.

Volatility

Volatility of returns is the measurement used to define risk. It describes the variation of price of a financial instrument over time. The greater the volatility, the higher the risk.