What does PSPA stand for in pension planning?

In the context of pension planning, PSPA stands for Past Service Pension Adjustments. This term refers to adjustments made to the pension benefits of employees based on their past service with the employer that may not have been recognized in their pension plan. These adjustments are typically necessary when there is a change in pension plan design or when employees receive a pensionable service credit for periods that were previously unrecognized.

Understanding PSPA is crucial because it directly impacts how much pension benefit an employee will receive upon retirement. Employers must ensure that their pension plans are compliant with regulations governing the recognition of past service, which can affect contributions and the overall funding of the pension plan. By accounting for past service, both employees and employers can better manage expectations regarding lifetime retirement income, ensuring accuracy in the determination of benefits owed. This makes the concept of Past Service Pension Adjustments integral to effective pension planning strategies.