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Simple English definitions for legal terms
nonactuarially sound retirement system
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A quick definition of nonactuarially sound retirement system:
A nonactuarially sound retirement system is a type of retirement plan that uses the money contributed by people currently working to pay for the benefits of those who are already retired. This means that the plan does not invest the contributions to pay for future benefits. This is different from an actuarially sound retirement system, which invests contributions to ensure that there is enough money to pay for future benefits.
A more thorough explanation:
Definition: A retirement plan that uses current contributions and assets to pay current benefit obligations, instead of investing contributions to pay future benefits.
Example: A company's retirement plan that only uses the current contributions from employees to pay out benefits to retirees without investing any of the contributions for future benefits is a nonactuarially sound retirement system.
This means that the retirement plan is not sustainable in the long run because it does not take into account the future needs of retirees and the potential for inflation. As a result, the retirement plan may not have enough funds to pay out benefits to future retirees.