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Pension Plan

Calculating Your Earnings

Average straight-time monthly earnings are computed using your straight-time rate of pay (including certain variable pay, shift differential, and hourly COLA) and your regularly scheduled hours during:

  • the three calendar years in which these earnings were highest, during the ten calendar years just before you retire

    or, if greater

  • the final three years just before you retire.

The average straight-time monthly earnings during the final three years are calculated by using:

  • scheduled straight-time monthly earnings in the completed months of the calendar year in which you retire
  • scheduled straight-time earnings in the two preceding calendar years
  • for any months in the third preceding calendar year, the average of the scheduled straight-time monthly earnings for that year times the number of months used in that year.

You should note that this calculation does not use the actual scheduled earnings for the specific months of the third year.  The earnings rate used will be the monthly average for the entire year.

NOTE: The IRS places restrictions on the amount of compensation to be used in calculating the pension benefit.  Certain highly compensated employees may have a limit imposed.


Pension Benefit Example

A full pension will be the largest amount produced by any of the three formulas. For example, suppose you retire at age 65 with 30 years of Company Service and average straight-time monthly earnings of $3,000 a month.  Here is how your full pension would be calculated:

Regular Formula

                  .014 x 30 x $3,000     =    $1,260

                             Per Month    =     $1,260

Alternate Formula

               .01767 x 30 x $3,000     =     $ 1,590
              minus 50% x $1,874*     =           937

                             Per Month     =      $    653

Minimum Formula

$5 x 10 years   =    $  50
$7 x 10 years   =    $  70
$9 x 10 years   =    $  90
10% x $3,000   =    $300
Flat amount   =       $  18

Per Month   =          $528

In this case, the regular formula would give you a higher pension than the alternate or minimum formulas.  You would receive the highest benefit of $1,260 a month for the rest of your life.  Of course, if you elect to continue benefits to your spouse or other eligible dependents after your death, this amount will be reduced to account for the longer period over which plan benefits will be paid.  See Tables 3, 4, and 5 at the end of this section for survivor reduction factors.

*This is a typical Primary Social Security Benefit.