Defining Employee Accounts

This chapter provides an overview of employee accounts and discusses how to:

• Use employee accounts function results.

• Maintain employee accounts.

• Establish an interest-only definition.

• Define employee accounts.

Understanding Employee Accounts

Employee accounts tracks periodic—annual or monthly—contributions that employees contribute to their pension funds through paycheck deductions. They also track interest amounts and a running balance.

Sometimes activity in an employee account affects service, particularly for public plans. This can occur when employees:

• Withdraw contributions and forfeit the corresponding service—typically at termination.

• Repay the withdrawn contributions and “buy back” the service originally forfeited—typically after a rehire.

• Make contributions for times when they were not accruing service and thus “purchase” service credit for that time—typically when a person was employed but not eligible for the plan.

  Plans may also enable employees to purchase service for time spent on military leaves or other qualified leaves.

To link withdrawals, repayments, and service purchase contributions to both an employee account and the corresponding service accrual, you use subaccounts. Every transaction in a subaccount rolls up to the parent account (the plan’s actual contributory account). Additionally, transactions in subaccounts trigger appropriate adjustments to the corresponding service.

See Also

Setting Up Contributory Plans

Using Employee Accounts Function Results

You need to keep track of employee contributions and the interest they earn. The employee accounts function keeps track of pre-tax and post-tax contributions, interest (which is always pre-tax), and total balance. Employee accounts keeps periodic subtotals and running balances.

There are three types of employee accounts:

• The function result for a plan’s main contribution account is the final dollar amount of the account as of the event date.

• The function result for a withdrawal subaccount tracks amounts that employees withdraw and repay from the plan contributory account.

  All transactions roll up to the main contribution account and the associated service accrual.

• The function result for a purchase subaccount tracks amounts that employees pay into the main contribution account to buy service for specific time periods.

  Note. Do not use purchase accounts to track repayment of withdrawn amounts.

Because employees already own the amounts in their contributory accounts, there are special considerations for incorporating the amount into a final pension calculation. Also, a plan must always pay back all of an employee’s contributions and interest, so it’s important to record final account balances and track pension payments against those final balances.

Note. If you create subaccounts, put them before the main account when you set up the job stream on the Plan Implementation page.

See Also

Adding Function Results to a Plan Implementation

Using the Main Contributory Account in the Calculation

When employers use employee contributions to offset employer contributions to the plan, part of the employee’s eventual benefit is attributed to the contributions. The employee paid benefit function calculates the employee-paid portion of a benefit by projecting the final employee account balance to the normal retirement date and then converting it to an actuarially equivalent annuity.

The employee-paid portion of a benefit is not subject to vesting rules or 415 limits. You therefore use the employee-paid benefit result to separate the employee-paid and employer-paid portions of the total benefit before you apply vesting and 415.

See Also

Defining Employee-Paid Benefits

Using the Main Contributory Account When Paying Retirees

When employee contributions are post-tax, the portion of the final benefit attributable to the contributions is not considered taxable income to the employee. Because the employee accounts function tracks post-tax and pre-tax contributions separately, you can use the post-tax balance information in determining the pre-tax and post-tax breakdown of a pension check.

For example, if Erika’s post-tax contributions total 21,000 USD and you calculate that she should recover that amount over 210 payments, then 100 USD per month of Erika’s pension is treated as nontaxable income. If her total pension is 1,500 USD per month 1,400 USD is taxable.

The system ensures that you don’t pay out more than 21,000 USD of nontaxable income by copying the final account post-tax balance to a payment summary record. The system identifies the correct account balance based on the employee account function result you enter in the Plan Aliases page.

The summary record also keeps a running total of nontaxable benefits paid. Each time the system processes a payment, it updates the running total and checks that it doesn’t exceed the final post-tax balance. If the scheduled nontaxable amount would bring Erika over the limit, the payment process automatically reduces the amount as necessary.

The total account value, pre-tax and post-tax, is also copied to the summary record. Because this is all Erika’s own money, if she dies before recovering the entire amount, the plan owes the remainder to her heirs. When Erika dies, you can compare the total account value to her lifetime benefit payments to see whether a death benefit is owed.

See Also

Scheduling Payments

Making Pension Payments

Using Withdrawal and Purchase Subaccounts

Use withdrawal subaccounts to track amounts that employees withdraw from and repay to the plan contributory account. Use the withdrawal subaccount to make a simultaneous adjustment to the employee’s service rather than making a manual adjustment to the main contributory account. By using the withdrawal account, you prepare for administering repayment of the withdrawn contributions and the corresponding service buyback.

If using withdrawal accounts, you can use the Payee Contribution Withdrawal page to pay out withdrawn contributions through the trustee extract.

Use purchase subaccounts to track additional contributions employees make to purchase service for time not worked. Use the purchase subaccount rather than making an adjustment to the main contributory account in order to associate the contributions with the corresponding amount of service.

See Also

Administering Contributory Plans

Maintaining Employee Accounts

When you run periodic processing, the results are stored in a permanent employee account history. You use the history in multiple ways:

• For employee inquiry. You can look up information without having to run a calculation first.

• For calculations. When you run a calculation, the system copies all the periods in periodic processing, then uses the ones prior to the event date when calculating the final event date balance.

Important! If you use periodic processing to update the employee account beyond the event date, the calculation may have unexpected results. Control your periodic processing population to avoid processing employees after termination.

See Also

Running Periodic Processes

Viewing Plan-Related Information

Administering Contributory Plans

Establishing an Interest-Only Definition

If an employee stops contributing to a plan because the employee becomes ineligible for the plan, or because the plan stopped requiring contributions, the account doesn’t necessarily close. Interest continues to accrue even though there are no contributions.

To deal with this, create separate employee accounts definitions to use when there are no contributions. If the plan stops requiring contributions, you create a new effective-dated rule in your function result. If the plan still requires contributions, you set up separate groups for employees who are contributing and those who are not contributing. For example:

The system can now to continue to process employees with no contributory information.

Defining Employee Accounts

To set up an employee account, use the Employee Accounts (EMPLOYEE_ACCOUNTS) component.

This section provides an overview of the Employee Accounts page, lists the page used to set up an employee account, and discusses how to set up an employee account.

Understanding the Employee Accounts Page

Use the Employee Accounts page to define an employee account.

Page Used to Set Up an Employee Account

Setting Up an Employee Account

Access the Employee Accounts page.

Interest Only (No Credits)

Select this option to create a definition that tracks interest only.

Employee Account Type

Select an account type. Contribution Account: Every contributory plan has one contribution account to track the total contributions made to the plan. Withdrawal Account: These track amounts that employees withdraw and repay from the plan contributory account and track the effect of these transactions on service. When you create the function result for the withdrawal account, you associate it with a regular contributory account and with a service function result. If you need to track more that one repayment at a time, set up multiple withdrawal accounts. Service Purchase: The function result for a this subaccount tracks amounts that employees pay into the main contribution account in order to buy service for specific time periods. Don’t use purchase accounts to track repayment of withdrawn amounts.

Credit Information

Note. If an employee changes employee accounts definitions in the middle of an accumulation period, the system normally uses the last definition in effect during the period for the entire period. If, however, an employee changes from a definition that uses consolidated deductions to a definition that uses interest only, the system uses the interest-only definition, but also picks up contributions made while the employee was covered under the previous definition.

Note. When you administer withdrawals of contributions, the system looks up the present value of the contributions based on the most recent complete accumulation period created by periodic processing. For this reason, you probably want to use monthly accumulation periods rather than annual accumulation periods if you administer withdrawals.

Projection Rule

Interest Method

Use Balance Interest to Event and Credit Interest the same way that you use them for cash balance accounts.

See Also

Projecting Hours and Earnings

Applying Section 401(a)(17) Earnings Limits