What are 'Allocated Benefits'

Allocated benefits are a type of payment that comes from a defined-benefit retirement plan. Allocated benefits are passed on, or allocated, to the plan participants once the insurance company has received its premiums.

This term can also refer to the maximum amount that can be paid for a given service that is itemized in a contract. A somewhat similar concept is the “benefit allocation method.” That method refers to a process of funding a pension plan by using one premium payment to claim one benefit unit for a designated time period.

BREAKING DOWN 'Allocated Benefits'

Allocated benefits provide guaranteed retirement income to plan participants that is ultimately backed by the insurance carrier and the Pension Benefit Guaranty Corporation, or PBGC. The PBGC is a nonprofit organization that acts as an agency of the federal government. It acts as a sort of insurance or warranty system, in that it guarantees continued benefit payments for defined-benefit retirement plans in the private sector, so participants can still receive the payment to which they are entitled, even if the plan becomes insolvent or runs out of funds. The PBGC makes these payments by drawing upon funds accrued via insurance premiums submitted by employers who have qualifying retirement plans.

These payments are regulated under the guidelines of the Employee Retirement Income Security Act of 1974, or ERISA.

Allocated Benefits and the ERISA

Allocated benefits provide the employees who participate in that plan with an added level of security and stability. Because the benefits that have been purchased are paid up, the employees can rest assured that they will receive those benefits even if their former employer goes bankrupt. This means retirement plan participants do not have to worry that they may be left without recourse should the plan experience some sort of unforeseen disaster.

The ERISA is designed to protect the interests of millions of Americans who participate in retirement plans. It helps ensure that those participants are able to access the funds to which they are entitled when the times comes that they are eligible to receive benefits from the plan. While ERISA does not require a company to have a retirement plan, it does establish rules and policies for employers who do provide these plans. It requires employers or retirement plan managers to provide participants with certain basic information related to the plan, including the minimum time period required for eligibility to participate in the plan and the structure for how participants can earn benefits.

RELATED TERMS
  1. Allocation Of Plan Assets On Termination

    Allocation of Plan Assets on Termination occurs when a pension ...
  2. Unit Benefit Plan

    A unit benefit plan is an employer-sponsored pension plan with ...
  3. Allocated Funding Instrument

    Allocated funding instrument is a type of insurance or annuity ...
  4. Benefit Allocation Method

    The benefit allocation method is a means of funding a pension ...
  5. Alternative Minimum Cost Method

    An alternative minimum cost method is the type of calculation ...
  6. Active Participant Status

    Active-participant status is a reference to an individual's participation ...
Related Articles
  1. Financial Advisor

    An Overview Of The Pension Benefit Guaranty Corporation (PBGC)

    Find out how this "retirement lifeguard" can save drowning plans, and why it's unlikely to be a long-term solution to the pension problem.
  2. Financial Advisor

    How Do Pension Funds Work?

    Traditional private pension funds are well regulated by the government through ERISA and the PBGC. Alternative investments are aiding portfolio returns.
  3. Retirement

    5 Lesser-Known Retirement And Benefit Plans

    These plans aren't widely used, but they fill a specific niche for employees in certain situations.
  4. Personal Finance

    The Demise Of The Defined-Benefit Plan

    Experts are making bleak predictions for your post-work years. Be prepared and plan for your future.
  5. Retirement

    New 401(k) Pension Rollover Rule: Pros and Cons

    Is the new rule allowing participants to roll their 401(k) balances into pensions a good idea?
  6. Retirement

    Chipping Away At The Pension Freeze Trend

    Learn five steps that'll put your retirement back into your own hands.
  7. Retirement

    3 Jobs With Good Retirement Benefits

    Jobs with retirement benefits are sought after by U.S. employees. Those retirement benefits can include pensions, 401(k) plans and other perks.
  8. Retirement

    Are Cash Balance Pensions the Best for Small Biz?

    Are cash balance pensions the right solution for your small business clients?
  9. Retirement

    Can You Count On Your Pension?

    We look at how to determine the health of your company's pension plan, and what to do if things are looking grim.
  10. Retirement

    Retirement Tips for Government Workers

    Discover retirement tips for government workers such as what types of funds to choose, different types of plans, and at what age to retire.
RELATED FAQS
  1. Are SIMPLE IRA plans subject to ERISA?

    Learn how the Employee Retirement Investment Security Act, or ERISA, guides the administration of Savings Incentive Match ... Read Answer >>
Trading Center