Unit Benefit Formula
A method of calculating an employer's contribution to an employee's defined benefit plan. The employer calculates the contribution by multiplying an employee's years of service by a percentage of his or her salary.
Investopedia Commentary
For instance, the company may provide 0.5% or 1% of the employee's salary for each year of service. One advantage of this retirement plan contribution system is that employees are compensated for working longer at a company. However, many employers are reluctant to adopt this system because it requires the services of an actuary and, in turn, higher associated costs for the employer.
Related Links
Introductory Tour through Retirement Plans
See also: Actuary, Defined Benefit Plan, Flat Benefit Formula, Pension Plan, Pension Shortfall, Target Benefit Plan