17
R etirem ent System B ookkeeping
By ROY B. SAUNDERS
Oregon S tate College
C u rre n t Service A nnuities
D uring his years of service, the
em ploye deposits w ith the re tire -
m ent system a certain percentage of
on his
age w hen he en ters state or school
em ploym ent, or his age on Ju ly 1,
1946 if he was in the service before
a n d o n th a td a te -
To m atch the em ploye’s total on
deposit w hen he retires, his em ploy
ing agency or d ep artm en t (called
h e re a fte r the “em ployer” ) deposits
70 cents
into the system by th e em ployee.
This is estim ated to
4he^er^ O )y ^5^^^K m atching, because
m any em ployees w ill quit state se r
vice before ten years is uQ ^Sal'-.a'
B g K v ili die w hile still w orking for
^ ^ ^ ^ S ^ J i b e i o r e retiring. In these
cases the em ployee’s total on de
posit (plus in terest, less operating
expense) is refunded, b u t the em
ployer gets no refund. O ver the years
this estim ated 70 cents from the em
ployer
th e em ployee can be adjusted up or
necessary
Suppose th a t Ju ly 1st afte r the
em ployee’s 65th b irth d ay has arrived
and he is re tirin g from service. Up
to this tim e the em ployee’s account
has been credited w ith his m onthly
deposits and at the end of each fiscal
y ear (on Ju ly 1st) has been credited
w ith his share of in tere st earnings
and has had
of th e operating expense subtracted.
The em ployer’s account is treated
likew ise
includes
enough for its m any em ployees. W hen
re tire m en t occurs, the total on de
posit in th e re tirin g em ployee’s ac
count is m atched from em ployer ac-
counts and set aside in a “R eserve
for A n n H E 1 ©Jamgpji-.” F o r each
$1,000 so set aside, the em ployee re
tired w ill get $7.74 p er m onth for the
re st of his life, assum ing th e em
ployee is a B m a n p y a iL ^ W B » » a B i
chosen. This m oney set a^m e.lw the
reserve for annuities granted is th e-
oretically expected t o .b ^ ^ R t enough
at 214 % in terest to pay the em -
ployee’s cu rren t service annuity len
til th erero n th B dies. F or a p a rtic u
la r employee, th e chance of th at h a p
pening is alm ost nil. He will either
live longer than | | s p .e l||||i and get
m ore or he will die sooner an djEgejl
less, but because of th e m any em -
ployees involved, the e x p ^ ^ m^c^jj^
th eV T ^ B ^ ^ ^ ais W a t a ^ a ^ ^ ^ g v e ^ ^ ^ e
everything w ill come out even.
Since, afte r the employee, r e t i r e d
neith er he nor the em ployers con
trib u te fu rth e r to pay out this cu r
re n t service annuity, it is necessary
f l r a | u p this reserve and set it up
rig h t if there is to be enough m oney
to pay the annu m B ag n h S reffi. T hat
is w hat is m eant by being “actuarily
sound.” I
This setting up of the reserve for
!B n u itiE llfr3 in ted B ‘'starw ?rd^'com -
m ercial practice. Its purpose ishplear
grid the practice is sound. As th e
annuities are paid, the re tire e ’sB B
count shows a record of the period-
ic paym ents he receives and their
am ount is subtracted from th e re -
serve. Some people w ill say there
are other w ays of running retirem en t
system s in the case of going concerns
like federal and state governm ents.
T h e 3 ^ ^ ^ ^ ^ ^ ^ c o B ^ f e u ti|g j^ c b iB i) B
in from em ployees about as fast as
annuities are paid out. B ut these
H H e r w ays” are called “actuarily
unsound.” The state re tirem en t board
is keeping cu rren t service annuities
|||t u a r i |B ^ B i d .
P rio r Service .Pensions
W hen the re tire m en t law w as
R s l s ^ l C a m c luHed a prom ise by the
state to pay em ployees who retired
under its provisions $2.50 p er m onth
for each year of^state or ^ f f d ol ser-
vice p rior to Ju ly 1, 1946, up •- to a
m axim um of 20 years. It w as fur^
th er enacted th a t this cost w as I to
be amortSW^i! o^g r a period of 30
y e a r^ H
T lB e^pensions,«are unlike cu rren t