Alternative Minimum Cost Method

DEFINITION of 'Alternative Minimum Cost Method'

An ERISA approved method of funding pension plans. Pension plan administrators have two choices available to them when it comes to plan funding. The plan can be funded according to either the actuarial cost method or the accrued benefit cost method, which does not use benefit projections.

BREAKING DOWN 'Alternative Minimum Cost Method'

The alternative minimum cost method requires complex actuarial calculations regardless of which specific alternative is used. Administrators will usually choose an alternative based on which is cheaper. The cheapest choice generally depends on various demographic factors pertaining to the plan participants.

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