FAQ 1099: Maximum Deductible - At Risk Liabilities

Problem: How are the at-risk liabilities and loads on the PPAFASMP screen applied?

Solution: At-Risk loads can be applied to the liabilities of a plan that is NOT in At-Risk status under IRC 430(i). The At-Risk Loads options on the Funding \ PPAFASMP screen are considered for the calculation of the plan's Maximum Deductible Contribution. The following options are available: - Percent Loading Factor - $ per Participant Loading Factor - Apply $ Load only when Indiv Funding Target > $0 - Apply only % and $ loads The first three options affect how At-Risk Loads are reflected. Refer to the Overview of At-Risk Loads section below for more information. The fourth option affects the benefit commencement date reflected in the calculation of At-Risk liabilities: either the participant's Normal Retirement Date or a calculated At-Risk Retirement Date. Refer to the Overview of Modified Assumption and Benefits section below for more information. ============================================================ OVERVIEW OF AT-RISK LOADS (PERCENT AND $ PER PARTICIPANT) ============================================================ At-Risk loads are included in At-Risk liabilities based on the following input options in the PPAFASMP screen: - Percent Loading Factor: Input the Percent Loading Factor. Current law provides for a percent load of 4.0%. The Percent Loading Factor input will be multiplied by the participant's PPA Max Funding Target and PPA Max Target Normal Cost respectively and added to their At-Risk Funding Target and At-Risk Target Normal Cost. - $ per Participant Loading Factor: Input a dollar load. Current law provides for a dollar load of $700. ), The $ per Participant Loading Factor will be added to the participant's PPA At-Risk Funding Target subject to the setting of 'Apply $ load only when Individual Funding Target > 0' as described below. - Apply $ load only when Individual Funding Target > 0: The system default is No which will include the $ per Participant Loading Factor in a participant's At-Risk Funding Target even when the PPA Maximum Funding Target is zero. Select Yes to not include the $ per Participant Loading Factor in the participant's At-Risk Funding Target if the PPA Maximum Funding Target is zero. ================================================================================ OVERVIEW OF MODIFIED ASSUMPTIONS AND BENEFIT OPTION (APPLY ONLY % AND $ LOADS) ================================================================================ At-Risk liabilities can be calculated reflecting the use of modified actuarial assumptions and accelerated payments based on the setting of the 'Apply Only % and $ Loads' option as follows: - Apply only % and $ loads - Yes. Only the Percent Loading Factor and $ per Participant Loading Factor (subject to the setting of Apply $ load only when Individual Funding Target > 0) will be reflected in the calculation of At-Risk Funding Target and At-Risk Target Normal Cost. - Apply only % and $ loads -No. In addition to the At-Risk loading factors, At-Risk liabilities will reflect the use of modified actuarial assumptions and the most valuable form of payment considering their At-Risk Retirement date with the early retirement benefits for the benefit commencement date of active and terminated participants. Benefits payable at a participant's At-Risk Retirement Date will be calculated considering the Plan Specifications: General \ Benefits \ OTHERBEN screen \ Early Retirement Benefit settings. Apply only % and $ loads set to No is generally only designed for plans not valuing preretirement decrements. ============================================================ AT-RISK RETIREMENT DATE ============================================================ A participant's At-Risk Retirement Date is calculated and stored on the Basic Data \ DATE screen when the field is blank or when a participant's Status is B or C. When participant Status is A, the At-Risk Retirement Date can be manually input. The At-Risk Retirement Date is generally calculated to be the participant's Full Vesting Date. A participant's At-Risk Retirement Date will be considered when the Funding \ PPAFASMP screen's Apply only % and $ loads is set to No. ============================================================ INDIVIDUAL AT-RISK RESULTS ============================================================ Detailed At-Risk calculation results for participants are stored on the participant's Costs \ VALPPA screen on the At-Risk Max tab. When 'Apply only % and $ loads' is Yes, the calculated At-Risk Loads row of the At-Risk Max tab stores the following fields: - Funding Target %, - Funding Target $, and - Target Normal Cost %. The At-Risk Loads Fund Target $ is calculated based on the $ per Participant Loading Factor input and the setting of 'Apply $ Load only when Indiv. Funding Target > 0' on the Funding \ PPAFASMP screen. The Funding Target % and Target Normal Cost % fields is calculated based on the Percent Loading Factor input on the Funding \ PPAFASMP screen applied to increase the PPA Maximum Funding Target and PPA Maximum Funding Target Normal Cost, respectively. When 'Apply only % and $ loads' is No, the At-Risk Benefits, Present Value Factors, Present Values, 415 At-Risk Benefits are calculated based on the participant's benefit commencement date of their At-Risk Retirement Date. The participant's At-Risk Loads are calculated as described above when 'Apply only % and $ loads' is Yes. A participant's Final At-Risk Funding Target and At-Risk Target Normal Cost is the sum of the At-Risk liabilities and the At-Risk Loads. ============================================================ REPORTING ============================================================ The Reports > Valuation > PPA DB... menu's PPA Funding Values Report will include an additional At-Risk employee listing page when the Report Option At-Risk Listing on PPA Funding Values is checked. ============================================================ CALCULATION EXAMPLES ============================================================ Relevant Data: - Percent Loading Factor: 4% - $ per Participant Loading Factor: $700 - Apply only % and $ loads: Yes - Apply $ Load only when Indiv Funding Target > 0: No Example 1: Active Participant - PPA Maximum Funding Target: 5,000 - PPA Maximum Target Normal Cost: 2,000 The At-Risk Funding Target is equal to the PPA Maximum Funding Target plus 4% plus $700. At-Risk Funding Target = $5,900 (5,000 * 1.04 + 700). The At-Risk Target Normal Cost is equal to the PPA Maximum Target Normal Cost plus 4%. At-Risk Target Normal Cost = $2,080 (2,000 * 1.04). Example 2: Terminated Participant - Vested Percent: 40% - PPA Maximum Funding Target: 5,000 The At-Risk Funding Target is equal to the Vested Percent times PPA Maximum Funding Target plus 4% plus $700. At-Risk Funding Target = $2,780 (5,000 * 1.04 * 40% + 700).