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: Download the DB FAQ 1099 - Maximum Deductible - At Risk Liabilities.pdf by clicking on the link below or download from the Client Support Center \ Documents section. https://csc.asc-net.com/csc/asc_client/download/User%20Documentation/DB%20FAQ%201099%20-%20Maximum%20Deductible%20-%20At%20Risk%20Liabilities.pdf ============================================================ OVERVIEW ============================================================ ASC can calculate At-Risk liabilities based on the 4% and $700 per participant loading factors described in FAQ 932. To calculate At-Risk liabilities reflecting the use of modified actuarial assumptions and accelerated payments, additional steps are recommended. This document explains where to locate At-Risk storage fields in Plan Specifications and Employee Data and includes 3 methods for modifying your ASC case to reflect modified actuarial assumptions. Additional suggestions for cash balance plans are also included. ============================================================ LOCATING THE AT-RISK VALUES IN PLAN SPECIFICATIONS AND EMPLOYEE DATA ============================================================ At-Risk values in Plan Specifications and Employee Data are populated during Calculations > Valuation with the Plan Costs step. They can be edited to reflect custom At-Risk liabilities calculated either outside of ASC or using a special case. If edits are made, Calculations > Valuation - Partial Calculations are recommended based on the approach taken. For At Risk results, the Reports > Valuation > PPA DB... - Maximum Deductible Contribution report will consider the values stored in Plan Specifications: Values \ - LIABILTY screen - At-Risk Funding Target fields are located in the Vested at-Risk row: Retired column for those in payment status Weighted Total column for terminated vested participants - COSTS screen - At-Risk Funding Target and At-Risk Target Normal Cost fields for Actives The plan totals found in Plan Specifications are based on the sum of values stored in the Employee Data: Costs \ - VALPPA screen - At-Risk Funding Target and At-Risk Target Normal Cost fields are located in the PPA Max tab - At-Risk row ============================================================ OVERVIEW OF METHODS FOR ADJUSTING RESULTS FOR AT-RISK ============================================================ We have developed steps for users who need to calculate at-risk liabilities using at-risk assumptions for either traditional DB or Cash Balance plans. The first step is to create a “Copy Case” of your “Original Case” using File > New, followed by File > Copy. The Copy Case is used to develop at-risk liabilities. Once calculations have been run in the “Copy Case”, select one of the three methods described to load at-risk liabilities into your “Original Case” Three approaches for adjusting existing results for At-Risk liabilities and loads in your Original Case: - Method A - Employee Level Adjustment - Method B - Plan Level Adjustment - At-Risk Override - Method C - Plan Level Adjustment - Calculated At-Risk % Load After reviewing each method, choose the method that works best for your plan. ============================================================ CASH BALANCE PLAN CODING FOR AT-RISK LIABILITIES ============================================================ For a typical cash balance plan consider these steps for generating at-risk liabilities in a copy case: I. 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 should also be selected that is consistent with the vesting schedule. For example, if excluding vesting years before the effective date, set Starting Date to 4 - BOY or Entry or 2 - Plan Year if vesting service isn't excluded. II. Set Plan Specifications \ Funding \ FUNDMETH > Assumed RA to Early III. 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. Their early retirement dates should correspond to the date they could become fully vested. IV. If satisfied, follow the instructions for bringing your Copy Case results into your Original Case under Method 1 or 2. ============================================================ METHOD A - EMPLOYEE LEVEL ADJUSTMENT ============================================================ This method uses an ASCript export of the Copy Case employee level results and an ASCript import into the Original Case. Partial Calculations are used to prevent overriding the imported employee level fields. I. Original Case Instructions A. Calculate and review the PPA Maximum Funding Target and Target Normal Cost. These results should be valued without regard to at-risk assumptions and loads. These results will be used in Step III. II. Copy Case Instructions A. Code the Copy Case with the appropriate at-risk assumptions for accelerated payment and the use of modified actuarial assumptions B. Funding \ PPAFASMP - Enter the following values in the Loading Factor fields: a. Percent Loading Factor: 0 b. $ per Participant Loading Factor: $700 C. Run Calculations > Valuation - Complete Calculations D. Using ASCript, select Export and select at least the following fields (save the .VXF for repeat usage): a. Name b. Index field (SSN, Name, or EE Number, which ever field will be used to index an employee from the Copy Case to the Original Case) c. At-Risk Funding Target (VALPPA screen \ PPATRGAL field) d. At-Risk Target Normal Cost (VALPPA screen \ PPATRGNC field) E. Save the export file in a location of your choice III. Original Case Instructions A. Using ASCript, select Import, select the file created in Step II.E., and select the same fields as those fields included in the Copy Case VXF from Step II.E above. (save the VIF for repeat usage). a. Consider also storing the imported At-Risk Funding Target and At-Risk Target Normal Cost in the User Text fields in case the values imported into the VALPPA screen are accidentally overridden. If the VALPPA screens are overridden by running complete calculations, you can use Grid > Set Column Data to quickly copy values from the User Text fields into the VALPPA screen fields. B. To add the 4% Statutory Load of the PPA Maximum Funding Target and Target Normal Cost to the imported At-Risk Funding Target and Target Normal Cost, grid formulas and set column data are used. In Employee > View > Grid: a. Create a New Grid and select at least the following fields: i. NAME screen \ Name ii. VALPPA screen \ PPATRGAL iii. VALPPA screen \ PPATRGNC b. Use Set Column Data with Formula Expression to change the At-Risk Funding Target PPATRGAL field with this formula: i. $ROUND(PPATRGAL;0)+$ROUND(PPAAL*0.04;0) c. Use Set Column Data with Formula Expression to change the At-Risk Target Normal Cost PPATRGNC field with this formula: i. $ROUND(PPATRGNC;0)+$ROUND(PPANC*0.04;0) C. Funding \ PPAFASMP - Set loads as 4% Load and $700 per Participant Load for reporting purposes. D. Run Calculations > Valuation - Partial Calculations, from Totals. Do not run Calculations > Valuations - Complete Calculations as this will replace the At-Risk liabilities formula results determined in Step III.B. E. When printing Reports > Valuation PPA DB... Summary of Actuarial Assumptions, the Percent and $ loads will print based on the 4% and $700 inputs of the Funding \ PPAFASMP screen from Step III.C. F. Review the maximum deduction report to verify results. G. Consider Locking the valuation in the Calculations > Valuation menu to ensure results are not overridden. ============================================================ METHOD B - PLAN LEVEL ADJUSTMENT - AT-RISK OVERRIDE ============================================================ This method uses the Copy Case plan level results to input plan level results in the Original Case. Partial Calculations are used to update the Maximum Deductible Contribution stored in Plan Specifications based on the plan level inputs for At-Risk Funding Target and Target Normal Cost. I. Original Case Instructions A. Calculate and review the PPA Maximum Funding Target and Target Normal Cost. These results should be valued without regard to at-risk assumptions and loads. These results will be used in Step III. II. Copy Case Instructions A. Code the Copy Case with the appropriate at-risk assumptions for accelerated payment and the use of modified actuarial assumptions B. Funding \ PPAFASMP - Enter the following values in the Loading Factor fields: a. Percent Loading Factor: 0 b. $ per Participant Loading Factor: $700 C. Run Calculations > Valuation - Complete Calculations D. Locate total At-Risk Funding Target and At-Risk Target Normal Cost results separately for actives, term vesteds, and retired participants from Plan Specifications. III. Calculate At-Risk Overrides with Non-At-Risk Percent Load A. Using the At-Risk Funding Target and Target Normal Cost from the Copy Case and the PPA Maximum Funding Target and Target Normal Cost from the Original Case, calculate results for Actives, Retireds, and Terminated participants as follows: a. Actives i. At-Risk Funding Target (from Copy Case) + 4% of PPA Maximum Funding Target (from Original Case) ii. At-Risk Target Normal Cost (from Copy Case) + 4% of PPA Maximum Target Normal Cost (from Original Case) b. Retired - At-Risk Funding Target (from Copy Case) + 4% of PPA Maximum Funding Target (from Original Case) c. Term Vested - At-Risk Funding Target (from Copy Case) + 4% of PPA Maximum Funding Target (from Original Case) B. Note that in these calculations, the At-Risk Funding Target from the Copy Case already includes the $700 per Participant Loading Factor. C. Consider documenting the development of the calculated overrides in the Notes fields of the General \ Identification \ ID screen of the Original Case. IV. Original Case Instructions A. Store the Calculated At-Risk Overrides from Step III.A. in the following Plan Specifications: Values \ fields: a. COSTS screen - For Actives, enter the At-Risk Overrides for Funding Target and Target Normal Cost, respectively b. LIABILTY screen - For Retireds and Term Vesteds, respectively, enter the At-Risk Overrides for Funding Target B. Funding \ PPAFASMP - Set loads as 4% Load and $700 per Participant Load for reporting purposes. C. Run Calculations > Valuation - Partial Calculations, from Plan Costs. Do not run Calculations > Valuations - Complete Calculations as this will replace the At-Risk liabilities overrides input in Step IV.A. D. When printing Reports > Valuation PPA DB... Summary of Actuarial Assumptions, the Percent and $ loads will print based on the 4% and $700 inputs of the Funding \ PPAFASMP screen from Step IV.B. E. Review the maximum deduction report to verify results. F. Consider Locking the valuation in the Calculations > Valuation menu to ensure results are not overridden. ============================================================ METHOD C - PLAN LEVEL ADJUSTMENT - CALCULATED AT-RISK % LOAD ============================================================ This method uses the Copy Case to calculate an At-Risk % Load to input in the Original Case to back into a total plan At-Risk liability as provided in the Copy Case. Using a calculated At-Risk % Load in the Original Case allows a Complete Calculation run. I. Original Case Instructions A. Calculate and review the PPA Maximum Funding Target and Target Normal Cost. These results should be valued without regard to at-risk assumptions and loads. These results will be used in Step III. II. Copy Case Instructions A. Code the Copy Case with the appropriate at-risk assumptions for accelerated payment and the use of modified actuarial assumptions B. Funding \ PPAFASMP - Enter the following values in the Loading Factor fields: a. Percent Loading Factor: 0 b. $ per Participant Loading Factor: 0 C. Run Calculations > Valuation - Complete Calculations D. Output results (either through grid, PPA Funding Values report, or from Plan Specifications) and isolate the At-Risk Funding Target and At-Risk Target Normal Cost totals without loads. III. Solve for a Calculated At-Risk % Load A. Using the At-Risk Funding Target and Target Normal Cost from the Copy Case and the PPA Maximum Funding Target and Target Normal Cost from the Original Case, solve for the Calculated At-Risk % Load. Calculated At Risk % Load = (At Risk Funding Target + At Risk Target Normal Cost (both from Copy Case))/(PPA Max Funding Target + PPA Max Target Normal Cost (both from Original Case)) B. Consider documenting the development of this Calculated At-Risk % Load in the Notes fields of the General \ Identification \ ID screen of the Original Case. IV. Original Case Instructions A. Funding \ PPAFASMP screen a. To reflect both the Calculated At-Risk % Load and the 4% statutory load, enter the sum of the Calculated At-Risk % Load from Step III.B.. and the 4% statutory load in the Percent Loading Factor field. b. Enter $700 in the $ per Part field and select the Apply $ Load only when Indiv Funding Target > 0 option of your choice. B. Run Calculations > Valuation - Complete Calculations C. After running calculations with the Calculated At-Risk Load, in the Funding \ PPAFASMP screen, change the Percent Loading Factor to 4% for reporting purposes. Do not run Calculations > Valuations as this will override the At-Risk liabilities developed based on the Calculated At-Risk % Load. D. When printing Reports > Valuation PPA DB... Summary of Actuarial Assumptions, the Percent and $ per Participant loads will print based on the 4% and $700 inputs of the Funding \ PPAFASMP screen from Step IV.C. E. Review the maximum deduction report to verify results. F. Consider Locking the valuation in the Calculations > Valuation menu to ensure results are not overridden.