Page 41 - Life Assurance

In a defined-benefit plan, numerous
formulas can be used to determine the
retirement benefit. They include the following:

a) Unit-benefit formula: The unit-benefit
formula is widely used at the present time.
Under this formula, both earnings and years of
service are considered. For example, the plan
may pay a retirement benefit equal to 2 percent
of the worker’s final average pay multiplied by
the number of years of service.

b) Flat percentage of annual earnings:
Under this formula, the retirement benefit is a
fixed percentage of the worker’s earnings, such
as 40 to 60 percent. The benefit may be based on
career- average earnings or on an average of
final pay.

c) Flat pound amount for each year of
service: Under this formula, a flat pound amount
is paid for each year of credited service. For
example, the plan may pay 40 pounds monthly at
the normal retirement age for each year of
credited service. If the employee has 30 years of
credited service, the monthly pension is 1200
pounds. This formula is not widely used.

d) Flat pound amount for all employees:
This formula is sometimes used in collective
bargaining plans by which a flat pound amount

141 Life51/life/life 08