; FAQ 1099: Maximum Deductible - At Risk Liabilities

FAQ 1099: Maximum Deductible - At Risk Liabilities

Problem:

Besides the 4% and $700 loads described in FAQ 932, how do we calculate results using at-risk assumptions?


Solution:

We have developed a workaround for users that need to calculate at-risk liabilities using at-risk assumptions for either traditional DB or Cash Balance plans. Once calculated in a separate copy of the plan, there are two approaches to loading at-risk liabilities into your original plan: plan level and participant level. Below these instructions is an alternative workaround specific to first-year cash balance plans for calculating at-risk assumptions.

Calculating at-risk liabilities in a separate copy of your original case
1. Make a copy of your Original Case. We'll refer to the Original Case and Copy Case in the instructions.
2. Code the Copy Case with the appropriate at-risk assumptions.
i. Enter the 4% load and $700 per participant load in PPAFASMP screen as well.
ii. This may involve assuming a Normal Retirement Date (NRD) and an ERD that reflect 100% vesting date (coincident with 3 years of vesting service based on the 3-year cliff vesting table for safe harbor cash balance plans)
a. Consider modifying Plan Specification definitions on RETIRE screen and run eligibility calculations for everyone whose status is set to C and/or
b. Consider changing the RETIRE and ERD fields of participant records, setting all statuses to A to prevent recalculation of these dates.
3. Run your full calculations in the Copy Case.


Loading at-risk liabilities from your Copy Case to your Original Case
Option 1 - Plan-level results
1. For actives, write down the results from the Copy Case Plan Specifications \ Values \ COSTS screen in the At-risk Funding Target and At-risk Target Normal Cost fields for the current year. Enter these values in the corresponding fields of your Original Case.
2. For retired and term vesteds, write down the results from the Copy Case Plan Specifications \ Values \ LIABILTY screen \ Current Year PPA folder in the 3 PPA Vested At-Risk Funding Target fields. Enter these values in the corresponding fields of your Original Case.
3. From your Original Case, run partial valuation calculations from the Plan Costs level.
4. Review the maximum deduction reports to verify results.

Option 2 - Participant-level results
1. From the Copy Case, create an Employee Grid with at least the following fields:
i. Name
ii. SSN/Number - whichever field will be used to index an employee from the Copy Case to the Original Case
iii. At-Risk Funding Target (PPATRGAL)
iv. At-Risk Target Normal Cost (PPATRGNC)
2. From your Copy Case, export the Employee grid results to excel or text file.
3. From your Original Case, use Ascript to import the At-Risk Funding Target and At-Risk Target Normal Cost fields into your Original Case. Review the employee records of your Original Case to ensure the values have been properly imported.
4. From your Original Case, run partial valuation calculations from Totals.
5. Review the maximum deduction reports to verify results.

Note that although you have not run the 4% load and $700 per participant load in your original case, you will want to code this in the original case so that the PPA Summary of Actuarial Assumptions report includes those assumptions.


Alternative workaround for first-year cash balance plans
1. In the Copy Plan, change Plan Specifications \ General \ Identification \ ANCILELG > Early Retirement Minimum Age to 1, set the Minimum Service to have the same years requirement that would be required under the vesting schedule for a participant to be 100% vested. The Starting Date must also be selected that is consistent with the vesting schedule.
2. Set Plan Specifications \ Funding \ FUNDMETH > Assumed RA to Early
3. Run Calculations > Valuation. Provided participant's status codes are B or C, their Early retirement dates will be recalculated, and those dates will be used for their retirement liability.
4. If satisfied, follow the instructions above for loading your Copy Case into your Original Case under Option 1 or 2. Alternatively, you may return the settings changed in steps 1 and 2 to the original settings without running calculations. This will allow your PPA report Summary of Plan Provisions to display the correct plan provisions.

Traditional DB plans or non-first year cash balance plans require different plan specifications coding that is customized to each case.