The Accrual Definition is a special type of benefit formula component designed to accommodate a wide range of plan designs. There are four categories of accrual definitions: final average, career average, cash balance, and basis only. Depending upon the category, completing an accrual definition will involve establishing an accrual basis formula, and possibly accrual rate, accrued benefit & rounding, and interest crediting. See these topics for additional information.

The names assigned to each category of accrual definition give one possible application for that category, but it is certainly not the only application. For example, dollar-multiplier plans can be modeled with final average or with career average accrual definitions. You can simulate an employee contributory formula with a cash balance accrual definition. Pension equity plans can make use of career average and basis only definitions. Only by examining the actual calculations inherent in each type of plan can you determine which variety is appropriate in a given instance.

Final average accrual definitions first calculate a cumulative sum of rates over an individual’s service until decrement. This sum is then multiplied by a basis, also evaluated at decrement. For most final average pay plans this means that the percentages of final average salary are entered in the rates and that the final average salary itself is entered in the basis.

Career average accrual definitions calculate a running total until decrement, each term of which is a given year’s rate times its basis. For many career-average plans, this means that the percentages are entered in the rates and the salary itself is entered in the basis. The accrued benefit topic identifies the benefit earned that will be used as the beginning point for the accruals.

Cash balance accrual definitions, like the career average type, calculate a cumulative total of each year’s rate times its basis. Cash balance plans also credit interest on the account until payout. The accrued benefit topic describes the account balance, with interest. Refund-of-contribution benefits often utilize cash balance accrual definitions.

Basis only accrual definitions do not include the concept of benefit accrual over service. They merely provide access to the accrual basis formula dialog box, where special operators are available to refer to pay, covered compensation, Social Security items, etc.