Need Clarification on Benefit Formula

[Guest Heather_PA]

Trying to determine the accrued benefit based on the following....

NRB = 2% average monthly comp per year of service up to 25 years

Accrual Method = Fractional accrual based on years of service

Average Monthly Comp = $3,000

10 years of service

NRD = 2032

I am calculating as follows: 2%x25yrsx$3,000=$1,500x.4=$600 monthly accrued benefit. (with the denominator being 25 years)

Is this correct, or should I be using 2%x25yrsx$3,000=$1,500x.33333=$500 monthly accrued (with the denominator being 30 years)

[Andy the Actuary]

Based upon your facts, scenario "B" would apply.

This accrued benefit method was once referred to as "project/prorate." Your scenario "A" is the projected NRB.

[Mike Preston]

Well, I don't like the NRD being defined as "2032". Is that 1/1/2032? Or 12/31/2032? Doesn't it make a difference?

[david rigby]

Mike's caution is worthwhile.

The "usual" method is .02 x 25 x $3K = $1500, then multiply that result by a fraction of PS(past service) / TS(total projected service at NRD).

However, some plans use minor variations, for example a maximum on TS in the above fraction. Read plan definitions carefully.

[Guest Heather_PA]

Mike's caution is worthwhile.

The "usual" method is .02 x 25 x $3K = $1500, then multiply that result by a fraction of PS(past service) / TS(total projected service at NRD).

However, some plans use minor variations, for example a maximum on TS in the above fraction. Read plan definitions carefully.

Thank you all... and that is where I'm struggling, whether or not I use 25 years as the total years based on maximum years mentioned above, or if I still use 30 as the total years because the participant is projected to have 30 years of service at NRD. The NRD is January 1, 2032.

[SoCalActuary]

Mike's caution is worthwhile.

The "usual" method is .02 x 25 x $3K = $1500, then multiply that result by a fraction of PS(past service) / TS(total projected service at NRD).

However, some plans use minor variations, for example a maximum on TS in the above fraction. Read plan definitions carefully.

Thank you all... and that is where I'm struggling, whether or not I use 25 years as the total years based on maximum years mentioned above, or if I still use 30 as the total years because the participant is projected to have 30 years of service at NRD. The NRD is January 1, 2032.

In your document's definition of accrued benefit, the meaning should be clear. If that section describes a limit on service counted for accrual, you would use that limit. If no such limit is implied, then you use all applicable service in the denominator.