Pension Equity Plan (PEP)

Published: | Updated: May 5, 2018

Definition - What does Pension Equity Plan (PEP) mean?

A pension equity plan (PEP) is a retirement benefit in which a percentage of an employee's average salary is multiplied by the number of years in service. This kind of plan serves the reality of workers leaving one job for another instead of staying in one workplace for life, since what they finally receive after working is a lump-sum payment.

Insuranceopedia explains Pension Equity Plan (PEP)

A pension equity plan is a type of defined benefit plan. It serves the retiree well if their salary is good or if it has grown during their career, since the percentage is based on an average salary rather than its initial amount.

To illustrate, assume that an employee has worked a company for ten years. Their salary varied over those years, but it averages at $50,000. Their length of service puts them in the 5% bracket. 5% of their average salary is $2,500. That amount multiplied by their ten years of service gives them the full amount of their PEP benefit. The employee, then, will receive a $25,000 benefit when they leave their job.

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