Which term describes a strategy to balance retirement benefits against Social Security benefits?

The strategy that balances retirement benefits against Social Security benefits is referred to as the "integration formula." This approach allows retirement plans to coordinate their benefits with Social Security to ensure that overall retirement income is relatively balanced and equitable for participants.

The integration formula helps in calculating benefits in such a way that the retirement plan supplements Social Security benefits rather than duplicating them, reflecting the idea that the combined benefits should meet the retirement needs of the employee. By integrating the two, employers can offer a more appealing retirement plan that effectively addresses the potential gaps in Social Security coverage.

In contrast, permitted disparity refers to situations in which certain retirement plans can provide higher contributions or benefits for highly compensated employees without violating certain regulatory limits. Income smoothing is a broader concept used in financial planning to spread income over time but does not specifically address the balance between retirement benefits and Social Security. Social Security offsetting, while similar, is not a formally recognized term like the integration formula that addresses the interaction of retirement plans and Social Security.

Understanding the integration formula is vital for professionals working in retirement planning as it helps design benefit structures that optimize employee retirement income while ensuring compliance with regulatory frameworks.