Chapter 4: Qualified Pension Plans

01.Core Concepts

• Marcee is a participant in a defined benefit pension plan and earns $125,000 per year and has been employed for 30 years. The base funding formula is 1% per year of service times final salary. Marcee’s benefit would equal $37,500 (1% x $125,000 x 30) • Offset Method • Assume instead of 1% per year of service, she receives 1.75% per year of service times final salary and the benefit includes an offset reduction that reduces the benefit for earnings below the Social Security covered compensation limit by 0.75%. In this example, Marcee would receive $43,125 [(1.75% x $125,000 x 30) – (0.75% x 100,000 x 30)]