FAQ 1140: COLAs - How to Reflect for DB Plans

Problem: I have a plan that assumes a Cost of Living Adjustment (COLA) applies to the plan's normal form and several retirees who have elected annuity forms with a COLA. How do I code for this?

Solution: There are several options available for reflecting a COLA feature in your DB plan. Actives and Terminated Participants assumed to receive normal form with a COLA ------------------------------------------------------------------------------------------------------------- To assume a COLA increase applies for the normal form of benefit payable at retirement for actives and terminated participants with Annuity Type of Normal Form selected, the assumed increase should be entered in the Post-Retirement COLA field in the following Plan Specification screens depending on the valuation type: - For funding valuations - enter a COLA in the Funding \ BENFORM screen - For ASC-715/FASB valuations - enter a COLA in the Assumptions \ FASB screen - For 417(e) benefit determination - enter a COLA in the Assumptions \ 417E screen - For Top-heavy determination - enter a COLA in the Assumptions \ TOPHEAVY screen Participants in Payment Status receiving annuities with COLAs ----------------------------------------------------------------------------------- To reflect a COLA for participants in payment status, a value up to 15.00 can be entered in the participant's Benefits \ ACCRBENF screen in the Annuity Normal Form frame and the Percent COLA field. Note that this input applies the COLA on a prospective basis only. The Accrued Benefit entered for the retiree should already reflect the application of COLAs prior to the current valuation date. Manually update the retiree's Accrued Benefit or review the Accrued Benefit result after running the Update to New Period. During the Update to New Period Calculations, the system will take the following steps for participants in payment status with a COLA value entered: - Copy the current plan year's Accrued Benefit to the new plan year's Prior Accrued Benefit - Apply the COLA to the current plan year's Accrued Benefit and store the COLA-adjusted result in the new plan year's Accrued Benefit For a retiree coded with a COLA input in the Benefits \ ACCRBENF screen, the following reports will include an indicator that a COLA applies along with the COLA percentage: - Valuation reports that show the retiree benefit form type payable, - Participant Termination/Optional Forms PBGC Benefit Commitment - Retired Notice of Plan report An additional option is available for participant in payment status for any annuity type by using the Annual Rate field on the Benefits \ ACCRBENF screen. This field can be set to Yes to assume payments are made annually, rather than the default assumption of monthly when the setting is No for any annuity type selected. For valuation reports that show the retiree benefit form type payable, the report will include a footnote indicator that payments are made annually when Annual Rate is Yes. The Annual Rate field can be used with or without a COLA increase input in the COLA field. The combination of COLA and Annual Rate inputs may be useful for coding Required Minimum Distribution payments that occur on an annual payment with a prescribed COLA. Additional Reporting Features ----------------------------------------- For the PPA Valuation report, the Optional Forms setup menu includes an option to include text in the Summary of Plan Provisions report that annuity optional forms may have an elected COLA included. Using Table Maintenance for Checking Factors -------------------------------------------------------------- To check APRs or PVFs that include a COLA adjustment, the Calc Annuity Rates and Calc PV Factors functions can be used. Both allow a COLA input (along with a required Initial Benefit and Maximum Benefit).