Annual Required Contribution (ARC)
The actuarially determined amount a city should contribute to its pension fund each year to keep the plan on track to full funding.
How It Works
The ARC (also called the actuarially determined contribution or ADC) includes the normal cost (benefits earned by current employees during the year) plus an amortization payment toward any unfunded liability. When cities pay less than the ARC — which many do during budget crunches — the unfunded liability grows. Consistently paying less than the ARC is a leading cause of pension underfunding. CitySpend tracks whether cities are meeting their ARC as part of the pension funding analysis.
Related Terms
- Unfunded Liability — The difference between a pension plan's projected liabilities (what it owes to current and future retirees) and its current assets. Also called the unfunded actuarial accrued liability (UAAL).
- Funded Ratio — The percentage of a pension plan's projected liabilities that are covered by current assets. A plan with $80 in assets for every $100 in liabilities has an 80% funded ratio.
- Defined Benefit Pension — A retirement plan where the employer guarantees a specific monthly payment for life based on years of service and final salary — the traditional government pension.
About This Definition
This definition is part of the CitySpend Municipal Finance Glossary — 59 terms explaining how city governments fund and manage public services. All definitions are written in plain language for taxpayers, journalists, students, and municipal bond investors.