Projected unit credit is a method of calculating the amount of a pension benefit that an individual is projected to earn based on their current years of service and salary. It is often used in defined benefit pension plans to estimate the future value of an individual’s pension benefit.
To calculate a projected unit credit, you will need to know the following information:
The current number of pension unit credits that an individual has earned: This is typically based on a formula that takes into account the individual’s years of service and salary.
The projected number of additional years of service: This is the number of years that the individual is expected to work before retiring.
The projected salary: This is the salary that the individual is expected to earn over the remaining years of service.
To calculate the projected unit credit, you will use the same formula that is used to calculate the current number of pension unit credits, but with the projected number of years of service and the projected salary.
For example, if an individual currently has 30 pension unit credits, is expected to work for 10 more years, and is expected to earn an average salary of $70,000 per year over that time, the projected unit credit would be:
Projected unit credit = (10 years of service x $70,000 average salary) + 30 pension unit credits
= $700,000 + 30 pension unit credits
This means that the individual’s projected pension benefit would be $730,000.
Projected unit credit is a useful tool for estimating the future value of a pension benefit, but it is important to note that it is only an estimate and the actual pension benefit may be different due to a variety of factors, such as changes in salary or the financial health of the pension plan.