Pensions: Why Is Your Accrual Rate Important?

January 10, 2008: Many Teamster pension funds have shifted their benefit structure to one based on an annual accrual, or multiplier. Under this system, you earn (or “accrue”) a monthly pension amount each year you work. And if you earn a full pension, you will get the sum of all those annual accruals as your pension amount. The higher the accrual, the higher your pension.

Many Teamsters are used to a different benefit structure, such as “$3,500 for 30-and-out.” But within five years, most Teamsters will be getting a pension based on the accrual method, because as plans phase those benefits in, they will quickly surpass the existing 25-and-out and 30-and-out benefits.

Some plans state the accrual as a dollar amount, while others use a percentage of what is contributed during the year by the employer on your behalf. For example, if the employer contributes $14,000 and the accrual rate is two percent, that would add $280 to your monthly pension this year. Since the employer contribution goes up each year, the accrual will also.

For example, the Western Pennsylvania plan currently has a $3,500 30-and-out benefit. But it also has an accrual system that will rapidly overtake that benefit. By the end of the current contract, members will be able to retire with about $4,300 there.

Some pension plans will be paying more, some less, but most will be in that range. So understanding the accrual for your pension plan is very important.

UPS management knows this well. That’s why they have tied the new UPS Pension benefit to a small accrual, one that will be far below the other plans by 2012.

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