FAQ 2224: Rounding Contribution Pro-rata or Integration Allocation

Problem: How does ASC round to eliminate pennies being left over?

Solution: While there are different ways to handle the accumulated pennies left over by rounding, we have always used a method that continually adjusts the numerator and denominator in the calculation so that when the final allocation occurs, there are no pennies left over.  For example, if $50,000 contribution or the system determines the total contribution amount (by the total eligible employee compensation when targeting a Principal employee) is allocated on the basis of compensation.  The total compensation for the plan is 1 million.  The allocation per participant would be participant's compensation times the total contribution to be allocated divided by the total compensation or PCOMP*CONTRIB/TOTPCOMP.  After each participant receives their allocation rounded to two decimals, we reduce the CONTRIB by the participant's allocation amount and reduce the TOTPCOMP by the participant's compensation.  So, if the first participant made $100,000 he would be allocated 5,000 (100,000*50,000/1,000,000).  We reduce the remaining contribution by 5,000 and the remaining total compensation by 100,000.  The next participant's allocation would then be PCOMP*45,000/900,000.    We repeat the process for each employee.  By the time we reach the final employee, the PCOMP and the TOTPCOMP will be the same and the remaining contribution to be allocated will be his allocation.  This would be true for a pro-rata or integrated allocation. Using this method there are no pennies left over.  While the results may not match something calculated in Excel for every participant, this is considered a reasonable way to handle the allocation.