What are 'Accrued Benefits'

Accrued benefits are those benefits that employees earn at a later time in their employment. These types of benefits can include sick pay, personal time off, and other related benefits that employees earn or accumulate the longer they work. 

BREAKING DOWN 'Accrued Benefits'

Accrued benefits are a form of income employees receive, but is income not immediately paid. For example, a worker may collect vacation time based on hours worked. At a future point, the employee may take time off from working and still receive a regular salary. Accrued benefits can also refer to coverage earned by an employee on a pension plan based on years of service with an employer.

Types of Accrued Benefits

Accrued benefits refer to an array of benefits that employees receive or build upon during the span of their service with a particular employer. 

One example is an employee stock ownership plan (ESOP). In the case of an ESOP, a company sets up a trust fund and directs shares of its stock. Employees may make tax-deductible contributions of company stock to the plan as well. Distribution of funds to individual employee accounts may be through allocations based on years of service or other calculations. Shares and other plan assets must vest, or reach maturity before employees are entitled to collect them. Employees become entitled to a more substantial proportion of their accounts over time. For example, after three years of service, an employee may is entitled to 100% of the account. Upon retirement or resignation, an employee receives the vested portion of their account upon retirement or resignation. They can then sell the stock back to the company as they would on the open market. A similar accrued benefits plan is a stock-bonus plan. 

profit-sharing plan is another type of accrued benefit plan. In this case, a company may decide to make discretionary contributions to the program based on its quarterly or annual earnings. The company can use a variety of formulas to determine what proportion of the plan's assets to which each employee is entitled. It's an accrued benefit because an employee can't withdrawal any part of his or her allocation until age 59.5, similarly to a 401(k) plan. In fact, both are known as defined contribution plans and subject to the rules of the Employee Retirement Income Security Act (ERISA). 

Another accrued benefit plan is a money purchase pension plan. This plan is similar to a profit-sharing plan except contributions are fixed rather than variable. Thus, employers make contributions to each employee's account every year regardless of the company's profits. Employers can also set their vesting schedules as to when employees are entitled to what portion of their accounts.

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