Pension Plan Setup Completion

Use the Pension Plan Table page to complete the plan setup.

Part of the completion of the pension plan is defining contributory plans.

Contributory Plan Definition

Consider a plan that takes 2 percent of earnings up to 50,000 USD and 3 percent of earnings above that amount. Caesar is paid monthly; he earns 5,000 USD per month. Each month, the system annualizes the current 5,000 USD of earnings to arrive at an annual salary of 60,000 USD. The system then calculates Caesar's total annual contribution based on that assumed annual salary: 2 percent of 50,000 is 1,000, and 3 percent of the remaining 10,000 is 300, for a total of 1,300. So each month, the system deducts one twelfth of 1,300, or 108.33 USD.

If Caesar leaves the company after six months and 30,000 USD of earnings, his total contributions would be 650 USD, slightly more than the 600 USD he would have contributed if the system applied the deduction percentages based on year-to-date totals. You run into similar discrepancies with employees whose pay rate changes during the year or who don't always get paid the same amount in each paycheck.