In Business, what is a Past Service?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 07 October 2019
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Past service is a credit offered to employees who were qualified to participate in a pension plan but did not. Employees may not have participated because the pension plan did not exist when they started work or because they chose not to sign up when they became eligible. Credit for past service is usually provided at a reduced rate because otherwise it would be very costly for the company to make up the payments from the years the employee received no pension benefits.

In a common example of how past service might work, Joe Q. Public could start working for Anycorp in 2000. In 2007, Anycorp implements a pension plan as an employee benefit. If Joe Q. Public was eligible under the current standards for the pension plan starting in 2001, Anycorp would give him a past service credit, making pension payments for the six years that he would have been eligible for the plan. These payments may be spread out over a period of time. If Anycorp had a pension plan all along, but Joe Q. Public didn't sign up until 2007, he could also receive a past service credit.


Employees may be required to pay to access a past service credit, depending on company policy and the situation. Companies that allow their employees to buy in to receive a past service credit provide information to their employees to show them how they can buy in and how much they will be required to pay. The option of rolling over funds from retirement accounts to fund the payment is often an option. People should be careful before taking this option, as it may not be in their best interests; an financial advisor can provide information on the available options and the best choice.

People who start working for an employer and do not sign up for the pension plan with the idea of possibly getting a pension adjustment later should think carefully. Because past service credits are offered at a reduced rate, every year someone is not in the pension plan represents a potential loss. Signing up from the start allows people access to full pension benefits.

Understanding employee benefits can get complicated. Employers who offer benefits provide information through staff members who are in charge of administering benefits and assisting employees with benefits claims. It can be helpful to get information from these staff members and to discuss options with a financial advisor. Some options may be better for people in particular situations.


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