Benefit Allocation Method

One way to structure an employee pension plan. It also could describe a very elaborate process for deciding who gets to eat the last piece of pizza.

In the pension sphere, the benefit allocation method is usually described in terms something like this: an employee gets a single "unit" of benefit for each "unit" of service. That's a little abstract to make much sense, so we'll break it down a bit.

A unit of service is typically a year, and a unit of benefit might be an annuity. Sometimes the amount getting contributed to the plan is decided using a percentage of the worker's salary. Other times, it's a fixed dollar amount.

In this method, benefits are directly tied to years of service (and sometimes size of salary). The benefits build up in increments over time, rather than the pension plan having a rule like "at 20 years of service, you get this...at 25 years of services, you get that."