The normal-cost percentage refers to the actuarial calculation used to determine the cost of retirement benefits for employees. It is specifically calculated by the Office of Personnel Management based on generally accepted actuarial practices. This percentage represents a level amount of the total basic pay that employers must contribute to fund retirement benefits over time.
This term is primarily used in the context of public sector employment and pension plans. It applies to federal employees and is relevant in areas such as employment law and pension regulation. Understanding the normal-cost percentage can help employers and employees manage retirement benefits effectively. Users can utilize legal templates from US Legal Forms to navigate related processes and documentation.
Here are a couple of examples of abatement:
For instance, if the normal-cost percentage is determined to be 10 percent, an employee with a basic pay of $50,000 would require an employer contribution of $5,000 towards their retirement benefits for that year. (Hypothetical example.)
Normal-cost percentage calculations are governed by federal regulations, particularly under the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS). These laws outline how pension costs are calculated and funded.
| Term | Definition | Difference |
|---|---|---|
| Normal-cost percentage | The percentage of pay required to fund retirement benefits. | Specific to pension funding calculations. |
| Actuarial cost | The total cost of providing retirement benefits over time. | Includes all costs, not just the normal-cost percentage. |
| Contribution rate | The percentage of salary that employees and employers contribute to a retirement plan. | Can vary based on plan type and is not always tied to normal-cost percentage. |
If you are an employee or employer involved in a pension plan, it's important to understand how the normal-cost percentage affects your retirement benefits. You may want to:
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It is the percentage of an employee's pay that must be contributed to fund their retirement benefits.