Legal Definitions - actuarially sound retirement system

An actuarially sound retirement system is a retirement plan that has enough funds to pay for future obligations. This is achieved by receiving contributions from both employees and employers, which are then invested in accounts to pay for future benefits.

For example, a company may offer a 401(k) plan to its employees. The employees contribute a portion of their salary to the plan, and the employer may also contribute a matching amount. These funds are then invested in various accounts, such as stocks and bonds, to grow over time. When the employee retires, they can withdraw the funds as a source of income.

Another example is a pension plan offered by a government agency. The agency sets aside funds to pay for future retirement benefits for its employees. These funds are invested in various accounts to grow over time. When the employee retires, they receive a monthly pension payment based on their years of service and salary.

Overall, an actuarially sound retirement system is important to ensure that retirees receive the benefits they were promised and that the retirement plan remains financially stable.