For George's defined-benefit pension plan, what is the annual benefit accrued per year of service?

In a defined-benefit pension plan, the annual benefit accrued per year of service is a critical factor that determines the retirement income a participant will receive. The annual benefit percentage represents how much of their pay employees will receive as a pension for each year of service.

Selecting 1.5% as the annual benefit accrued means that for every year George works, he earns a pension benefit of 1.5% of his salary. This percentage is typically set by the plan's terms and is a common figure in defined-benefit plans, particularly in cases where the employer aims to keep pension costs manageable while providing employees with a safe and predictable retirement income.

In defined-benefit plans, the percentage can vary widely depending on employer policies and labor agreements. While higher percentages like 2.0%, 2.5%, or 3.0% might seem appealing, they typically result in more significant pension payouts, which could increase the overall financial liability for the employer. Therefore, a benefit rate of 1.5% per year of service strikes a balance between offering employees a reasonable pension and controlling costs for the employer.