Pension Equity Plan
What Does Pension Equity Plan Mean?
A Pension Equity Plan (PEP) is a retirement benefit that calculates an employee’s payout by multiplying a percentage of their average salary by the number of years of service. This type of plan caters to the modern workforce, where employees often change jobs rather than staying with one employer for life. The plan provides a lump-sum payment upon retirement, reflecting the total benefit accumulated over the years.
Insuranceopedia Explains Pension Equity Plan
A Pension Equity Plan (PEP) is a type of defined benefit plan that benefits retirees, particularly if their salary has been good or has increased over time. This is because the percentage used in the calculation is based on the average salary rather than the starting salary.
For example, consider an employee who has worked at a company for ten years. Their salary varied during this time, but it averaged $50,000. With a service length that places them in the 5% bracket, 5% of their average salary is $2,500. Multiplying this amount by their ten years of service results in a total benefit of $25,000. Therefore, when the employee leaves their job, they would receive a lump sum of $25,000 as their PEP benefit.
