What is the annual required contribution?

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What is the annual required contribution?

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According to GASB, the annual required contribution (ARC) is the amount the employer would be required to contribute for the year, calculated in accordance with certain parameters in order to fund the liability over time. The ARC is the sum of the “normal cost” (the portion of the present value of estimated total benefits that is attributed to services received in the current year) and the amortized unfunded actuarial accrued liability (UAAL—the cost of those same employees for past, unfunded years of service). The ARC, in effect, recognizes that retiree health benefits are “earned” and are financial obligations accrued during an employee’s entire period of service. The ARC is the annual amount a government would have to pay to fund its liabilities over time. This liability can be amortized up to 30 years.

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