Question

Which statement regarding integrating a plan with Social Security is CORRECT?

A) Only the excess method can be used by a defined benefit pension plan.
B) The maximum increase in benefits for earnings above covered compensation level is 50% for a defined benefit pension plan.
C) Under the offset method, a fixed or formula amount approximates the existence of Social Security benefits and reduces the plan formula.
D) Because there is a disparity in the Social Security system, all retirement plans are allowed integration with Social Security.

Answer 1

The correct statement regarding integrating a pension plan with Social Security is that, under the offset method, the existence of Social Security benefits reduces the pension plan formula.

Step-by-step explanation:

The correct statement regarding integrating a plan with Social Security is:

Under the offset method, a fixed or formula amount approximates the existence of Social Security benefits and reduces the plan formula. This implies that through the offset method, a pension plan can acknowledge the Social Security benefits a retiree will receive by reducing the pension benefits, often through a set formula or fixed amount calculated in consideration of those Social Security payments.

Pensions, traditionally known as "defined benefit" plans, provide retirees with a predetermined sum each year, which can lose buying power over time due to inflation, as opposed to "defined contribution" plans like 401(k)s, which depend on investment returns and contributions during the employee's career. . Under this method, the plan benefits are reduced by a fixed or formula amount to approximate the existence of Social Security benefits. This reduction in plan benefits ensures that there is no duplication or double-dipping of benefits for individuals who are eligible for both a pension plan and Social Security.