Accrued Benefit Cost Method
Definition - What does Accrued Benefit Cost Method mean?
The accrued benefit cost method is an actuarial system of arriving at the amount of money a person gets in the future by way of their retirement plan. It is based on their years of employment and the employee benefits the employee is entitled to each year until the time that they retire.
Insuranceopedia explains Accrued Benefit Cost Method
Actuaries calculate the life expectancy of an individual to determine the amount of money that individual has available from their pension or retirement plan. The age of retirement is also dependent on life expectancy.
Each year, a certain amount is set aside, based on the employee's salary, and considered as their retirement benefit for that year. The benefit is not just limited to working hours or days but may also factor in non-working time, like vacation breaks or sick leave. The calculation determines how much an employee can actually receive upon retirement.
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