The defined benefit plan benefit formula that provides $250 per month of service, 30 years maximum is known as a

The defined benefit plan benefit formula that provides $250 per month of service, 30 years maximum is known as a

• A. unit benefit percentage formula.
• B. flat benefit or fixed benefit percentage formula.
• C. unit benefit dollar formula.
• D. flat benefit or fixed benefit dollar formula.

Answer: (C)

The key idea is that this defined benefit formula pays a fixed dollar amount for each year of service. It’s called the unit benefit dollar formula because each year of service adds a constant dollar unit to the benefit. In this example, the plan credits $250 for each month of service, up to a maximum of 30 years. That means the monthly benefit at retirement grows linearly with years of service: 30 years × $250 per month = $7,500 per month at the maximum. The concept is different from a formula that pays a fixed percentage of final salary per year of service (unit benefit percentage) or a flat amount that doesn’t depend on service.

The key idea is that this defined benefit formula pays a fixed dollar amount for each year of service. It’s called the unit benefit dollar formula because each year of service adds a constant dollar unit to the benefit.

In this example, the plan credits $250 for each month of service, up to a maximum of 30 years. That means the monthly benefit at retirement grows linearly with years of service: 30 years × $250 per month = $7,500 per month at the maximum. The concept is different from a formula that pays a fixed percentage of final salary per year of service (unit benefit percentage) or a flat amount that doesn’t depend on service.