Which defined benefit formula yields a fixed monthly benefit equal to a specific amount per year of service?

Which defined benefit formula yields a fixed monthly benefit equal to a specific amount per year of service?

• 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: (B)

In this type of defined benefit plan, the way benefits accrue is determined by how the plan assigns an increment for each year of service. A flat (or fixed) benefit formula uses a constant per-year-of-service amount (either as a fixed dollar amount or as a fixed percentage) that is applied to every year of service. Because that per-year increment is fixed, the monthly retirement benefit grows in a predictable, straightforward way with years of service, yielding a fixed monthly amount that reflects a specific amount earned for each year of service. Put differently, for each year you earn a set, unchanging increment, so the total monthly benefit at retirement is directly tied to the number of years of service with that fixed per-year amount. This contrasts with unit-based approaches, where the benefit depends on a unit value that can be defined in various ways and may tie more closely to other factors like final pay or salary levels.

In this type of defined benefit plan, the way benefits accrue is determined by how the plan assigns an increment for each year of service. A flat (or fixed) benefit formula uses a constant per-year-of-service amount (either as a fixed dollar amount or as a fixed percentage) that is applied to every year of service. Because that per-year increment is fixed, the monthly retirement benefit grows in a predictable, straightforward way with years of service, yielding a fixed monthly amount that reflects a specific amount earned for each year of service.

Put differently, for each year you earn a set, unchanging increment, so the total monthly benefit at retirement is directly tied to the number of years of service with that fixed per-year amount. This contrasts with unit-based approaches, where the benefit depends on a unit value that can be defined in various ways and may tie more closely to other factors like final pay or salary levels.