Financial Terms Flat benefit formula

# Definition of Flat benefit formula

## Flat benefit formula

Method used to determine a participant's benefits in a defined benefit plan by
multiplying months of service by a flat monthly benefit.

# Related Terms:

Coverage against accidental death usually payable in addition to base amount of coverage.

## Accumulated Benefit Obligation (ABO)

An approximate measure of the liability of a plan in the event of a
termination at the date the calculation is performed. Related: projected benefit obligation.

## Automatic Benefits Payment

Automatic payment of moneys derived from a benefit.

## Benefit

An instruction that pays a cash amount upon the occurrence of a specific event.

## Benefit Ratio Method

The proportion of unemployment benefits paid to a company’s
former employees during the measurement period, divided by the total
payroll during the period. This calculation is used by states to determine the unemployment
contribution rate to charge employers.

## Benefit Value

The amount of cash payable on a benefit.

## Benefit Wage Ratio Method

The proportion of total taxable wages for laid off
employees during the measurement period divided by the total payroll during
the period. This calculation is used by states to determine the unemployment
contribution rate to charge employers.

## benefits-provided ranking

a listing of service departments in an order that begins with the one providing the most service
to all other corporate areas; the ranking ends with the
service department providing service primarily to revenueproducing
areas

## cafeteria plan a “menu” of fringe benefit options that include

cash or nontaxable benefits

## Cost-Benefit Analysis

The calculation and comparison of the costs and benefits of a policy or project.

## cost-benefit analysis the analytical process of comparing the

relative costs and benefits that result from a specific course
of action (such as providing information or investing in a
project)

## Cost-benefit ratio

The net present value of an investment divided by the investment's initial cost. Also called
the profitability index.

## Cost-Push Inflation

Inflation whose initial cause is cost increases rather than excess demand. See also demand-pull inflation.

## Death Benefit

Amount paid on death of an insured.

## Defined benefit plan

A pension plan in which the sponsor agrees to make specified dollar payments to
qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor.
Related: defined contribution plan

## Defined Benefit Plan

A pension plan that pays out a predetermined dollar
amount to participants, based on a set of rules that typically combine the number
of years of employment and wages paid over the time period when each
employee worked for the company.

## Deflation

A sustained decrease in the price level. The opposite of an inflation.

## Deflator

A price index used to deflate a nominal value to a real value by dividing the nominal value by the price deflator.

## Demand-Pull Inflation

Inflation whose initial cause is excess demand rather than cost increases. See also cost-push inflation.

## Disinflation

A reduction in the rate of inflation.

## Equivalent annual benefit

The equivalent annual annuity for the net present value of an investment project.

## Flat price (also clean price)

The quoted newspaper price of a bond that does not include accrued interest.
The price paid by purchaser is the full price.

## Flat price risk

Taking a position either long or short that does not involve spreading.

1) A bond in default trades flat; that is, the price quoted covers both principal and unpaid,
accrued interest.
2) Any security that trades without accrued interest or at a price that includes accrued
interest is said to trade flat.

## Flattening of the yield curve

A change in the yield curve where the spread between the yield on a long-term
and short-term Treasury has decreased. Compare steepening of the yield curve and butterfly shift.

## Formula basis

A method of selling a new issue of common stock in which the SEC declares the registration
statement effective on the basis of a price formula rather than on a specific range.

## GDP Deflator

Price index used to deflate nominal GDP to real GDP by dividing nominal GDP by the GDP deflator.

## Hyperinflation

Extremely high inflation.

## Incremental costs and benefits

Costs and benefits that would occur if a particular course of action were
taken compared to those that would occur if that course of action were not taken.

## Inflation

The rate at which the general level of prices for goods and services is rising.

## inflation

Rate at which prices as a whole are increasing.

## Inflation

A sustained increase in the general price level. The inflation rate is the percentage rate of change in the price level.

## Inflation-escalator clause

A clause in a contract providing for increases or decreases in inflation based on
fluctuations in the cost of living, production costs, and so forth.

## Inflation risk

Also called purchasing-power risk, the risk that changes in the real return the investor will
realize after adjusting for inflation will be negative.

## Inflation Tax

The loss in purchasing power due to inflation eroding the real value of financial assets such as cash.

## Inflation uncertainty

The fact that future inflation rates are not known. It is a possible contributing factor to
the makeup of the term structure of interest rates.

## Living Benefit

Some insurance companies include this benefit option at no cost to their policy holders. The insurer considers on a case to case basis, the need for insurance funds before death. If the insured can demonstrate a shortened life of less than two years and with some insurers one year, the insurer will consider releasing up to 50% or a maximum of \$100,000 of the life insurance coverage held by the insured. Not all insurers offer this benefit for free. The need has resulted in specific stand alone living benefit/critical illness policies coming into existence. Look under "Different types of Life Insurance" for further information. You might have heard of "Viatical Settlements", the practice of seriously ill people selling the rights to their life insurance policies to third parties. This practice is common in the United States but has not caught on in Canada.

## Net benefit to leverage factor

A linear approximation of a factor, T*, that enables one to operationalize the
total impact of leverage on firm value in the capital market imperfections view of capital structure.

## Pension Benefit Guaranty Corporation (PBGC)

A federal agency that insures the vested benefits of
pension plan participants (established in 1974 by the ERISA legislation).

## Stagflation

Simultaneous existence of high inflation and high unemployment, or simultaneous existence of rising inflation and r sing unemployment.

## Target Benefit Plan

A defined benefit plan under which the employer makes
annual contributions into the plan based on the actuarial assumption at that time
regarding the amount of funding needed to achieve a targeted benefit level.

## tax benefit (of depreciation)

the amount of depreciation deductible for tax purposes multiplied by the tax rate;
the reduction in taxes caused by the deductibility of depreciation

## Unit benefit formula

Method used to determine a participant's benefits in a defined benefit plan by
multiplying years of service by the percentage of salary.

## Workers' Compensation Benefits

Employer-paid insurance that provides their employees with wage compensation if they are injured on the job.