A participant with 20 service credits who is eligible today for Normal Retirement would receive how much per month?

A participant with 20 service credits who is eligible today for Normal Retirement would receive how much per month?

• A. $960.00
• B. $1,920.00
• C. $640.00
• D. $1,280.00

Answer: (C)

Pensions are calculated as a percent of the final average salary, based on the years of service. Each year of service adds a fixed accrual rate to that percentage. For normal retirement, the typical accrual rate is 2% per year. So with 20 years of service, the pension fraction becomes 20 × 2% = 40% of the final average salary. The monthly benefit is then 40% of the final average monthly pay. If the final average monthly pay is $1,600, the calculation is 0.40 × 1,600 = $640 per month. That’s why the answer is $640. If the final average salary or the accrual rate were different, the monthly amount would change accordingly, which is why other options don’t fit when using the standard 2% per year for 20 years.

Pensions are calculated as a percent of the final average salary, based on the years of service. Each year of service adds a fixed accrual rate to that percentage. For normal retirement, the typical accrual rate is 2% per year. So with 20 years of service, the pension fraction becomes 20 × 2% = 40% of the final average salary.

The monthly benefit is then 40% of the final average monthly pay. If the final average monthly pay is $1,600, the calculation is 0.40 × 1,600 = $640 per month. That’s why the answer is $640.

If the final average salary or the accrual rate were different, the monthly amount would change accordingly, which is why other options don’t fit when using the standard 2% per year for 20 years.