Glossary of Terms

Cost-of-Living Allowance (COLA) - an allowance for changes in the consumer price index from the Bureau of Labor Statistics.

Defined Benefit Pension Plan - An employer-sponsored retirement plan that promises a specified monthly benefit at retirement. Many companies with these plans face a gap between the amount of money currently in their plans and the amount of their pension obligations. This creates an "under funded" situation that may require employers to make large contributions to the plan to meet legal requirements.

Defined Contribution Pension Plan - A retirement plan in which the employee or the employer (or both) contribute to the employee's individual account, such as a 401(k). This plan does not promise a specific amount of benefits at retirement. The value of the account will fluctuate based on the performance of the investments, but it is always "fully funded."

Legacy Costs - A company’s pension and health-care cost obligations for its current employees and retirees.

FAS 106 - Under FAS 106, companies record their accrued liability for post-retirement health benefits and other non-pension benefits, after making a series of assumptions about health-care cost trends, inflation, retirement age, mortality rates, employee turnover, and other variables.

Spending Cap - Under FAS 106, with a spending cap, companies decide on a spending limit for their retiree health-care plans, usually based on a multiple of current expenses. Once the limit is reached, retirees will have to pay the difference.

VEBA - A Voluntary Employees' Beneficiary Association (VEBA) is a tax-exempt trust established to provide health and other types of welfare benefits, including medical, hospitalization and prescription drug, to employees or former employees. A number of companies have used VEBAs to address their legacy benefit obligations.