Unit Benefit Plan*

An employer-sponsored pension plan that provides retirement benefits based on a dollar amount or, more typically, a percentage of the employee’s earnings for each year of service. A unit benefit plan is usually based on a percentage ranging from 1.25-2.5%. When the employee reaches retirement, his or her years of service are multiplied by the percentage multiplied by the career average salary to determine the employee’s annual retirement benefit.

Explained further: A unit benefit plan provides retirement benefits based on the employee’s compensation and how long he or she has been employed by the company. If an employee has 35 years of service, for example, with final average earnings of $120,000 and the unit benefit plan percentage is 2.0%, the employee’s annual retirement benefit would be calculated as follows:

Years * average earnings * compensation percentage = annual retirement benefit.

Applying the above example to the calculation yields: 35 * 120,000 *.02 = $84,000

Definition courtesy of Investopedia

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