What Are the Dangers of Accepting Accumulated Contributions (Employee and/or Employer or Otherwise) As the Present Value of a Defined Benefit Plan?
It is important to understand that most defined benefit pension plans today are noncontributory, which means that the plans are funded solely by the employer. A participant’s accrued benefits are based entirely on a plan formula that typically incorporates a participant’s final average earnings and years of service under the plan. There are, however, some defined benefit plans that are partially employee-funded through periodic contributions. Although participants always remain 100 percent vested in their own employee contributions, their ultimate benefit under the plan does not correlate with such accumulated employee contributions. Many attorneys labor under the misconception that this cash-out of the account balance of accumulated employee contributions represents the present value of the pension. Instead, it should be the actuarial present value of the accrued benefit under the plan. Generally, employee contributions represent only a small fraction of the value of any accrued benef
Related Questions
- What Are the Dangers of Accepting Accumulated Contributions (Employee and/or Employer or Otherwise) As the Present Value of a Defined Benefit Plan?
- Under a Defined Benefit plan, are the employee contributions with interest representative of the value of the pension?
- Where are employee contributions to a defined benefit pension plan entered?
