How is pension calculated in a career average plan?

How is pension calculated in a career average plan?

• A. A percentage of last years' income
• B. A fixed dollar amount for each year worked
• C. A percentage of an employee's earnings over their career
• D. A fixed formula based on service length

Answer: (C)

In a career average plan, the pension is calculated as a percentage of an employee's earnings over their entire career, rather than focusing on an individual's final salary or a fixed amount per year. This approach provides a more equitable benefit that reflects the individual's earnings throughout their working life, rather than weighting the pension heavily toward the later years of service when salaries might be higher. This method allows for more consistent retirement income, as it averages out fluctuations in salary over time, accommodating various pay increases and career changes. By considering the overall earnings history, it aims to provide a more comprehensive reflection of an employee’s contribution and financial needs upon retirement.

In a career average plan, the pension is calculated as a percentage of an employee's earnings over their entire career, rather than focusing on an individual's final salary or a fixed amount per year. This approach provides a more equitable benefit that reflects the individual's earnings throughout their working life, rather than weighting the pension heavily toward the later years of service when salaries might be higher.

This method allows for more consistent retirement income, as it averages out fluctuations in salary over time, accommodating various pay increases and career changes. By considering the overall earnings history, it aims to provide a more comprehensive reflection of an employee’s contribution and financial needs upon retirement.