Defining Cash Balance Accounts

This chapter provides an overview of the cash balance accounts function and discusses how to:

Use the cash balance accounts function.
Maintain cash balance accounts.
Reference cash balance results at different dates.
Set up cash balance parameters.

Understanding the Cash Balance Accounts Function

The cash balance accounts function tracks the hypothetical employee accounts used in a cash balance plan to represent employees’ accrued benefits. This function keeps track of periodic, annual, or monthly credits and interest and maintains a running balance.

Using the Cash Balance Accounts Function

A cash balance plan is a benefit plan structured so that an employee’s benefit looks like a growing account balance, similar to a 401(k) plan. A hypothetical account grows through an accumulation of credits—typically based on earnings—and the hypothetical interest they accrue. The interest is determined by plan rules, not by actual investment performance, so the benefit is still definitely determinable.

If your organization sponsors a cash balance plan, you use the cash balance accounts function to calculate the credits and interest that make the account grow. The function result is a dollar amount at the event date, though you can also calculate the values as of other dates.

Your benefit formula might consist simply of the account balance, in which case the “normal” form of the benefit is a lump sum. It’s also possible that the normal form is an annuity that is actuarially equivalent to the account balance. You can use the factor utility to convert the lump sum to an actuarially equivalent annuity. Regardless of how you express the normal form of the benefit, only forms included in the corresponding optional form set are actually available to the employee.

Maintaining Cash Balance Accounts

The cash balance accounts function keeps track of a growing account, much like a bank account.

The bank updates your balances every time you make a deposit or earn interest. So it is with cash balance accounts, except that cash balance accounts credits, a percentage of an employee’s earnings, occur on a predictably repeating cycle—the same monthly or yearly cycle as the consolidated earnings that provide the earnings data.

To run cash balance accounts as a periodic process, select Pension, Periodic Processes, Request Process. The Batch Periodic Process page includes options to process cash balances. To maintain your account balances, you need to update your cash balance accounts immediately after updating the supporting consolidation.

When you run periodic processing, the system stores the results in a permanent cash balance account history. When you then run a calculation, the system uses that permanent history and only calculates accruals from that point forward.

Maintaining Employee Pension Data

Running Periodic Processes

Referencing Cash Balance Results at Different Dates

The value of a cash balance account changes over time. Although a cash balance accounts function result provides the value of the account at event date, the system also calculates the value at other dates: normal retirement date, benefit commencement date, and lump sum date. Moreover, if you’ve applied 401(a)(17) limits to the earnings used in determining cash balance credits, the system calculates both the limited and unlimited amounts at each of these three dates. To reference any of these six results, set up a function result alias on the Function Result Alias page.

Setting Up Cash Balance Parameters

To set up cash balance parameters, use the Cash Balance Accounts (CASH_BALANCE_ACCOU) component.

This section provides and overview of the Cash Balance pages, lists the pages used to set up cash balance parameters, and discusses how to:

Establish the earnings basis and accumulation period.
Specify the percentage of earnings take method.
Specify the rates to use.

Understanding the Cash Balance Pages

To maintain a cash balance plan, you track the allocated credits to individual employee accounts. These credits are based on a percentage of earnings. The cash balance also includes interest on these credits.

You use the Cash Balance pages to set up parameters for handling the credits and interest.

Pages Used to Set Up Cash Balance Parameters

Page Name	Object Name	Navigation	Usage
Cash Balance 1 of 3	PA_CSHBAL_ACCT_C1	Set Up HRMS, Product Related, Pension, Components, Cash Balance Accounts, Cash Balance 1 of 3	Establish the earnings basis used to calculate cash balance credits and to set the cash balance accumulation period.
Cash Balance 2 of 3	PA_CSHBAL_ACCT_C2	Set Up HRMS, Product Related, Pension, Components, Cash Balance Accounts, Cash Balance 2 of 3	Specify a method for taking a percentage of earnings.
Cash Balance 3 of 3	PA_CSHBAL_ACCT_C3	Set Up HRMS, Product Related, Pension, Components, Cash Balance Accounts, Cash Balance 3 of 3	Specify the rate or rates to use, regardless of whether you use a level rate or different rates above and below a threshold.

Establishing the Earnings Basis and Accumulation Period

Access the Cash Balance 1 of 3 page.

Credit Information

Base on Consolidated Earnings	Indicate the consolidated earnings function result you use as the source of your earnings data. The cash balance accounts function determines credits as a percentage of earnings. The consolidated earnings function provides the earnings history.
Accumulation Period	Select the cash balance accumulation period: Plan Year, Calendar Year, or Calendar Month. Cash balance accounts grow over defined accumulation periods. For example, a plan may grant credits every calendar year or every plan year. Interest is credited at the end of the accumulation period. When you look at the results of your cash balance calculations, you see the total for each period, as well as the balance at the end of each period. Note. Your cash balance accumulation period must match the accumulation period for the consolidated earnings you specify.
Apply 401(a)(17)	Select this option to use the limits. If you use the limits, use the adjoining text field to indicate the 401(a)(17) method to use. Qualified plans must observe Section 401(a)(17) limits.
Projection Method	Enter a projection method. Because consolidated earnings data is not always available for all periods (it is not available for estimates with event dates in the future), every cash balance accounts definition requires a projection method. The projection establishes an annualized earnings amount for the current period and then applies the assumed salary escalation rate (entered on the calculation page) to estimate future periods. The final period earnings are prorated using rules from the projection method.

Interest Methods

Employees receive interest at the end of each accumulation period.

You can use different interest methods for amounts credited during the current period and for prior balances. You can also use different prior balance methods before the event date and after the event date.

Balance Interest to Event	Enter a method to use for balances up to the event date.
Balance Interest After Event	Enter a method to use for balances after the event date.
Credit Interest	Enter a method to use for credits made for the current period.

Projecting Hours and Earnings

Using Interest Methods

Specifying the Percentage of Earnings Take Method

Access the Cash Balance 2 of 3 page.

Calculate Credit according to

To accumulate credits based on earnings, you need to indicate the percentage of the earnings to use. Select one of the following options.

Level Rate	Uses the same percentage for all earnings. Set the rate used on the Cash Balance 3 of 3 page.
Step Rate	Uses one rate below a threshold amount and another rate above the threshold. Enter additional information in the Step Rate Threshold group box. Also, set the rate used on the Cash Balance 3 of 3 page.
User Code	Uses customized code.
No Credit	Use if there are no continuing credits to your cash balances—that is, the only increases are due to interest. You typically use this option for periods after the event date or for periods of ineligibility, such as those preceding a rehire or a return from leave. You use the system’s grouping capabilities to apply the no credit definition to the appropriate period of time.

Step Rate Threshold

Enter information in this group box if you select Step Rate under Calculate Credit according to.

% of Table Lookup	You can vary the threshold by selecting this option, entering a fixed percent, and indicating a table lookup alias. The cash balance function looks up the rate, based on the criteria you define, to find a single threshold amount that applies to all periods. The system does not support table lookups that find different thresholds for different periods unless the threshold is based on the maximum taxable wage base.
% of MTWB (percentage of maximum taxable wage base)	Select this if your lookup is based on the maximum taxable wage base. Because the maximum taxable wage base changes every year, the system looks up the value for each accumulation period. Select one of the following to indicate the date on which to base the lookup: First Day of the Period, Last Day of the Period, First Day of the Plan Year, or First Day of the Calendar Year. When you use either the plan year or calendar year option, the system uses the plan year or calendar year that contains the first day of the accumulation period.
Constant Amt (constant amount)	Set a constant amount threshold.
User Code	Use your own custom user code to set the step rate threshold.
Subject to Minimum and Subject to Maximum	Set minimum and maximum credits per accumulation period. Your cash balance plan may give a fixed number of credits (for example, 500 per year), rather than basing the credits on earnings. In this case, you can use the minimum and maximum earnings limits to force the correct number of credits. If you do apply a limit, you reference that limit with either a Table Lookup or your own user code. Select Table Lookup or User Code field.

Note. Remember, you can apply 401(a)(17) limits on the Cash Balance 1 of 3 page. Do not use Subject to Maximum for this purpose.

Specifying the Rates to Use

Access Cash Balance 3 of 3 page.

Full Period Rules

The Full Period Rules options are the same for a flat rate and a step rate.

Flat Percentage	Enter a fixed percentage.
User Table	Enter the table lookup alias. With this option, you can look up the credit percentage using a regular table lookup. In this case, the percentage is based on criteria you set up using the table lookup utility, and you use a single rate for all periods.
Pgm Gen Lookup (program generated table lookup)	Select this option to vary the percentage according to age, service amount, or both age and service amount. “Program generated” means that the system looks up the rate for each period because the lookup basis (for example, the employee’s service) changes each period. This is different from a regular table lookup, where the lookup is the same for all periods.
Custom Statement	Enter the custom statement or statements that provide the percentage.
Up To Threshold	If you use a step rate, you need to enter two conversion rates. Enter the first here. If you’re using a level rate, you only enter a single rate here.
Above Threshold	Enter the second conversion rate here. These fields are not available for level rates.
Up to Pgm Generated (up to program-generated) and Above Pgm Generated (above program-generated)	There are two identical sets of parameters for configuring the age and service lookup bases. Up to Pgm Generated applies to level rates and step rates below the threshold. Above Pgm Generated applies to step rates above the threshold. Select one of the following to indicate what the program-generated lookup is based on: Age: Age only. Svc: Service only. Age + Svc: Age and service added together to yield a single lookup value. Age & Svc: A two-way lookup.
Age Start	If your lookup includes an age component, enter an alias for the date of birth (or any other starting date).
Age Mthd (age method)	Enter a duration option specifying the age calculation method.
Service Name	If your lookup includes a service component, enter a service function result.
Age End Date	For the age components, select either 1st Day Pd (first day of the period) or the Lst Day Pd (last day of the period).
Service As of	For the service component, select either the 1st Day Pd (first day of the period) or the Lst Day Pd (last day of the period).

Partial Period Rules

Partial period rules can occur when employees move in and out of plan eligibility or when they switch to another cash balance definition mid-period—for example, there is one definition before the event date and another with interest only after the event date. Select from Same As Full Period, No Credit, or User Code (your own custom code).