How Pension Systems Work

Pension systems are designed to provide retirement income for employees who have served a certain number of years. Understanding the key concepts helps you make informed decisions about your retirement planning.

Vesting

Vesting is the process by which an employee earns the right to receive pension benefits. Once an employee is "vested," they have earned the right to receive a pension, even if they leave employment before retirement age. The vesting period is typically defined as a minimum number of years of service (e.g., 5 years).

• Once vested, employees are guaranteed pension benefits based on their years of service
• Vested employees receive credit for their actual years worked, not projected minimums
• If an employee is vested but not yet eligible for retirement, their pension start date is delayed until they meet age requirements

Eligibility for Retirement

An employee becomes eligible for retirement when they meet specific age and service requirements. There are typically two paths to eligibility:

Years of Service Calculation

The system uses sophisticated actuarial logic to determine how years of service are calculated:

• If Vested: The calculation uses the actual years of service entered or calculated. The pension is based on real years worked, not projected minimums. However, if the employee is vested but not yet eligible for retirement (doesn't meet age requirements), the pension start date is delayed until they meet eligibility criteria.
• If Not Vested: The system projects forward to when the employee will become vested. It adds the years until vesting to the current years of service to calculate the total years of service that will be used for the pension calculation.

Pension Benefit Calculation

Pension benefits are typically calculated using a formula that considers:

• Earnings Base: Either base wage or Final Average Compensation (FAC), depending on system configuration
• Multiplier: A percentage applied per year of service (e.g., 2.5% per year)
• Years of Service: Actual years worked if vested, or projected years if not yet vested

The basic formula is: Annual Pension = Earnings × (Multiplier / 100) × Years of Service

Cost-of-Living Adjustments (COLAs)

Many pension systems include COLAs to help benefits keep pace with inflation:

• COLA Percent: The percentage increase applied (e.g., 7%)
• COLA Frequency: How often COLAs are applied (e.g., every 5 years)
• Number of COLAs: Total number of adjustments during retirement
• Compounding vs. Non-Compounding:
  • Compounding: Each COLA is applied to the increased pension amount
  • Non-Compounding: Each COLA is a fixed dollar amount added to the original pension

Pension Options

Most pension systems offer multiple payment options, all of which are actuarially equivalent (provide the same total lifetime value):

• Option 1 (Maximum): Highest monthly payment, but stops at employee's death
• Option 2 (Ten Year Certain): Guarantees at least 10 years of payments
• Option 3 (Joint & Survivor 100%): Spouse receives full pension after employee's death
• Option 4 (Joint & Survivor 66.67%): Spouse receives 66.67% of pension after employee's death

All options are designed to provide the same total lifetime benefit value, with differences in how benefits are distributed over time.

Contributions

Pension systems typically involve contributions from both employees and employers:

• Employee Contributions: A percentage of base wage contributed throughout employment
• Employer Contributions: Calculated using actuarial principles - present value of pension payments (using real rate) minus future value of employee contributions (using nominal rate), discounted to today's dollars
• Contributions are calculated based on actual years worked if vested, or projected years if not yet vested

Key Concepts Summary

• Vesting: Earning the right to receive pension benefits after a minimum number of years
• Eligibility: Meeting age and service requirements to begin receiving benefits
• Years of Service: Actual years worked (if vested) or projected years (if not vested)
• FAC: Final Average Compensation - average of highest 3 years of earnings
• COLA: Cost-of-Living Adjustments to help benefits keep pace with inflation
• Actuarial Equivalence: All pension options provide the same total lifetime value

Getting Started

This pension calculator helps you estimate retirement benefits for individual employees or entire departments. Choose a subscription plan to begin:

• Trial: Full-featured access for testing
• Individual User: $20/year - Single person calculations without file upload
• System-Wide: $250/year - Full system with CSV upload and employee editor. No maximum employee limit. This subscription is an invaluable tool for pension plan negotiations, allowing you to quickly calculate and feed the most advantageous numbers to actuaries for analysis. It saves significant time and avoids extremely costly and slow traditional actuarial calculations, enabling rapid scenario modeling and strategic planning.

Individual Calculations

For single employee calculations, fill out the individual form with:

• Employee Information: Name, date of birth, hired year, years worked, sex
• Spouse Information: Date of birth and sex (required for Options 3 & 4)
• Wage Information: Base wage and FAC (Final Average Compensation) wage
• Pension Option: Choose from 4 actuarially equivalent options
• COLA Settings: Configure cost-of-living adjustments

Click "Calculate Individual" to see detailed results with all calculation notes.

System-Wide Calculations

For multiple employees:

1. Download the sample CSV template or create your own
2. Edit the CSV file locally with your employee data (keeps data secure)
3. Upload the CSV file
4. Optionally edit employees using the built-in editor
5. Click "Calculate System-Wide" to process all employees

CSV Format: Required columns are: id, name, hiredyear, dateofbirth, spousedateofbirth, sex, spousesex. Optional: yearsworked

Understanding System-Wide Results: In the system-wide results table, the YOS (Years of Service) column shows the years of service at the earliest eligibility age (when the employee first becomes eligible to retire), not their current years of service. This represents the minimum years of service required to reach eligibility, which is used for the maximum pension obligation calculation. The Ret. Age column shows the actual retirement age used in the calculation.

Configuration Parameters

Click "Edit Configuration" to adjust pension system parameters:

• Retirement Age: Age at which full retirement benefits begin
• Multiplier: Percentage per year of service (e.g., 2.5% = 2.5% per year)
• Multiplier Based On: Whether to use Base Wage or FAC Wage for calculations
• Career Years of Service: Minimum years required for full benefits
• Eligibility Settings:
  • Vested Years: Years needed to be vested
  • Service Year Retirement: Years for service-based retirement
  • Min Age for Service Retirement: Minimum age for service retirement
  • Age Based Retirement: Age for age-based retirement
• COLA Settings: Cost-of-living adjustment parameters
• Financial Assumptions: Expected inflation rate and system rate of return
• Life Expectancy: Male and female life expectancies
• Employee Contribution Percent: Percentage of base wage contributed

Eligibility Rules

An employee is eligible for retirement if they meet ONE of the following:

• Vested Retirement: Years of service ≥ Vested Years AND Age ≥ Age Based Retirement
• Service Retirement: Years of service ≥ Service Year Retirement AND Age ≥ Min Age for Service Retirement

If an employee is vested but not yet eligible, their pension start is delayed until they meet eligibility requirements, but they will still receive benefits based on their actual years of service (not projected minimums).

Comparison Feature

Save calculations to compare different scenarios:

1. Run a calculation
2. Click "Save Current" to save it
3. Change parameters or employee data
4. Run a new calculation
5. View side-by-side comparison with color-coded differences

Note: You can only compare similar calculation types (individual vs individual, system-wide vs system-wide).

Tips & Best Practices

• Always verify calculations with official pension statements
• Use the FAC calculator if you're unsure of your FAC figure
• Save important calculations for future reference
• Review eligibility rules to understand when benefits begin
• Consider different pension options based on your family situation
• Remember: All options are actuarially equivalent in total lifetime value

What is FAC?

FAC (Final Average Compensation) is the average of an employee's highest three years of earnings, used as the basis for pension calculations. It provides a more accurate representation of an employee's earning capacity near retirement.

How to Calculate FAC

If you don't know your FAC figure, use the built-in calculator:

1. Click the 🧮 button next to "FAC Wage"
2. Select the number of years to include in the FAC calculation (1-10, default is 3)
3. Enter your base wage, OT/included bonuses, and roll-ins for the Final Year
4. Enter salary and OT/included bonuses for each Next Highest Year
5. The calculator automatically computes: FAC = (Final Year Total + Next Highest Year Totals) / Number of Years
6. Click "Apply to FAC Wage" to use the calculated value

Why FAC Matters

Using FAC instead of base wage can significantly impact pension calculations, especially for employees who had substantial overtime or other compensation in their final years. The multiplier is applied to FAC (if configured), making it an important factor in determining retirement benefits.

Calculation Formulas

Best Practices for Actuarial Calculations

• Use Conservative Assumptions: Life expectancies, inflation rates, and rate of return assumptions should be based on historical data and conservative projections
• Account for Time Value of Money: Always use present value calculations when comparing amounts across different time periods. Use real rate of return for discounting future pension payments and nominal rate for investment growth of contributions
• Proper Rate Selection: Use real rate of return (nominal minus inflation) when discounting future pension payments to account for purchasing power. Use nominal rate of return for actual investment growth of contributions
• Consider All COLAs: Ensure COLAs are properly applied to both employee and spouse pensions, with spouse pension starting at the employee's pension amount at death (after all employee COLAs)
• Verify Eligibility Rules: Always check that employees meet vesting and age requirements before calculating benefits
• Use Actual Years When Vested: For vested employees, use actual years of service, not projected minimums
• Document Assumptions: Keep clear records of all assumptions used in calculations for audit and verification purposes
• Regular Updates: Review and update assumptions (life expectancy, inflation, rates of return) periodically to reflect current economic conditions

Subscription Plans

Our pension calculator offers three subscription tiers to meet different needs:

Understanding Masked Results

Trial Subscription: All financial calculation results are masked with X's to protect sensitive information. This includes all dollar amounts (pensions, contributions, benefits, system totals).

Individual Subscription: Only system-wide and other employee information is masked. You have full access to all individual calculations, including the ability to change system-wide parameters. Individual calculation results are not masked - only system-wide pension information and all employees in pension system information are hidden.

System-Wide Subscription: Nothing is masked. Full access to all calculations and actual dollar amounts for all features.

The masking preserves the format (e.g., "$XXX,XXX") so you can see the scale of values, but the exact amounts are hidden where masking applies.

Upgrading Your Subscription

To upgrade from Trial or Individual to System-Wide, or to view subscription plans and pricing:

Subscription Benefits

All subscriptions provide:

• Access to all calculation features and formulas
• Ability to configure all pension parameters
• Comparison tools to save and compare different scenarios
• Detailed calculation walkthroughs
• Printable summary reports
• Secure processing (files deleted immediately after calculation)

The main difference is whether financial results are masked (Trial/Individual) or visible (System-Wide).

Device Registration & Limits

To protect account security and prevent unauthorized sharing, our system uses device hardware identification to limit the number of devices that can access each account. Device limits vary by subscription type.

Understanding Device Hardware IDs

Our system creates a unique "hardware ID" for each device by combining multiple device characteristics:

• Browser type and version
• Screen resolution
• Timezone
• Graphics card information
• Operating system
• Other device-specific characteristics

This hardware ID is stored securely and used to identify your registered devices. We only store a hash of this information, not the full device fingerprint, to protect your privacy.

Managing Your Devices

Individual Subscriptions:

• You can see which devices are registered in your account settings
• Devices cannot be changed during the year
• All devices reset on your subscription anniversary
• If you need to use a new device before the reset, contact support

System-Wide Subscriptions:

• You can see all 4 registered devices in your account settings
• You can replace devices if you have changes remaining
• Each device shows whether it has been changed this year
• Devices that haven't been changed can be replaced
• If you've used all 4 changes, you must wait for the annual reset

What Happens When You Reach the Limit?

Individual Subscription:

• If you try to log in from a 3rd device, you'll see a message explaining the limit
• The message will show your subscription anniversary date when limits reset
• You can contact support if you need immediate access from a new device

System-Wide Subscription:

• If you try to log in from a 5th device and have changes remaining, you'll see a list of your 4 registered devices
• You can select which device to replace with your new device
• If you've used all 4 changes, you'll see a message with your reset date
• You can contact support if you need immediate access

Annual Reset Process

Important: Device limits reset based on your subscription renewal date (subscription anniversary), not the calendar year. This means:

• If you subscribed on March 15th, your device limits reset every March 15th when your subscription renews
• The reset is tied to your subscription period, not January 1st
• Each user's reset date is unique based on when they first subscribed

Device limits reset automatically on your subscription anniversary:

• Individual Subscriptions: All device registrations are cleared, allowing you to register 3 new devices
• System-Wide Subscriptions: The device change count resets to 0, allowing 4 new device changes (devices remain registered)

You'll receive a notification when your limits reset, and you can immediately register new devices or make changes.

Privacy & Security

Device hardware IDs are used solely for account security and preventing unauthorized account sharing. We:

• Only store a hash of device characteristics, not full device information
• Do not share device information with third parties
• Allow you to see and manage your registered devices
• Clear device information when accounts are deleted

Need Help?

If you have questions about device limits or need to register a new device outside of the normal limits, please contact support. We're here to help ensure you can access your account when needed.