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What are Accrued Benefits?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 September 2016
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    Conjecture Corporation
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As a form of incentive offered above and beyond the basic salary, many employers choose to extend accrued benefits to workers. Essentially a pension benefit, accrued benefits help to provide for the future financial stability of the employee after retirement. Here are some examples of how an accrued benefit program can be structured to the mutual satisfaction of both employer and employee.

Some pension benefits are created with the use of a matching program between the employee and the employer. Within this scenario, the employee is able to designate an amount to be withheld from each pay period. The withheld amount is placed into an interest bearing account for the employee. On a quarterly or annual basis, the employer will match the withheld amounts, either with an equal amount of funds, or up to a certain amount, based on the total amount of funds collected from the employee’s salary. Both the contributions by the employer and the employee are added to calculate the rate of interest earned on the balance. This process allows the employee to build up savings for retirement, usually at a rate of interest that is better than a standard savings account.

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The employer can choose several methods for calculating how much to contribute. For example, contributions may be based on the company’s salary scale. Persons who fall within a given salary range receive a specific amount of fund deposited into the pension plan each year. For hourly employees, the contribution may take into account any overtime worked, with contributions factored based on actual income earned per pay period. When the employee rate of pay may vary from one period to another, many employers impose a ceiling on the size of the contributions made to the pension fund, usually a percentage of the base pay plus an allowance for a certain amount of overtime.

It is not unusual for the amount of matching done by the employer to increase over the years. Many employers follow a procedure of increasing the allowed accrued benefits for employees that remain with the company for periods of ten to fifteen years. While most of these increases will only be a percentage of the original limit of contributions, there are companies that will offer a substantial increase in accrued benefits to long time employees, especially those that retire with the company.

Accrued benefits are a great way to plan for the future, as part of the overall retirement package. Talk with your employer about any possible accrued benefits that are currently offered, and take advantage of matching programs you can join. Investing the time and money now will yield big benefits in the years to come.

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