Defining Benefit Formulas

This chapter provides an overview of the benefit formula and discusses how to:

• Use benefit formula results.

• Create the benefit formula definition.

• Apply a QDRO (qualified domestic relations order) offset.

Understanding the Benefit Formula

The benefit formula is the heart of a pension calculation. Most of the calculation steps prior to the benefit formula exist primarily to provide benefit components. You bring these components together in the formula.

Using Benefit Formula Results

This section provides an overview of benefit formula results, and discusses how to:

• Set up multiple formulas in a single function result.

• Set up multiple function results.

Understanding Benefit Formula Results

The benefit formula produces a dollar amount and a description of what that amount represents. The description consists of a payment frequency and normal (not default) forms of payment for single and married participants.

You use the result for reporting, primarily within the benefit statements you give your employees. You also reference the result when you use the optional forms of payment function to create the form set that goes with the benefit formula. Only forms in the optional form set are offered to employees. The normal form of the benefit, as defined in the benefit formula, is only offered if it is repeated in the optional forms of payment function.

Processing for the 415 limits function also looks at benefit results.

See Also

Defining Optional Forms of Payment

Applying Section 415 Limits

Setting Up Multiple Formulas in a Single Function Result

If you use different formulas for different retirement benefits (normal retirement, early retirement, disability retirement, or others), you can still incorporate all these formulas into a single benefit formula function result. You create groups based on benefit eligibility and associate each group with the appropriate formula. Every employee thus automatically uses the right formula.

You can similarly use grouping to distinguish between retirement benefits and ancillary benefits for death and disability.

Grouping also enables you to use different formulas for employees and for QDRO alternate payees. This is important because an employee’s formula is based on various calculated elements, such as service and final average earnings, whereas a QDRO alternate payee’s benefit is simply stored in the database. Although you do not need a benefit formula to give you that stored value, you need a benefit formula to multiply that value by an early retirement factor and to feed that amount into the payment process.

See Also

Defining Benefit Eligibility

Grouping Employees

Setting Up Multiple Function Results

All the reasons for setting up multiple benefit formula function results are about seeing before and after values, rather than just presenting a final amount without the intermediate values. For example, you can create separate function results to show benefits before and after applying:

• Vesting

• Early or late retirement factors

• A QDRO offset

Contributory plans offer another reason for setting up multiple benefit formula results. You set up one function result for the total benefit and another for the employer-paid portion of the benefit. By law, you can only apply vesting rules to the employer-paid portion. You then need a third function result that adds the employee-paid benefit back to the employer-paid portion after you apply vesting.

In certain cases you can use a standalone custom statement, rather than an additional benefit formula function result. Use the benefit formula if you want to:

• See the intermediate results (the system doesn’t show you results of standalone custom statements).

• Feed through to optional forms so you can pay employees based on that amount.

Note. When you use multiple function results, enter useful descriptions so that users can understand what each value represents.

Creating the Benefit Formula Definition

To define the benefit formula, use the Benefit Formula (BENEFIT_FORMULA) component.

This section provides an overview of the benefit formula definition, lists the pages used to define the benefit formula definition, and discusses how to:

• Define the normal form associated with a benefit formula.

• Define a benefit by mathematical formula.

Understanding the Benefit Formula Definition

You must explicitly state what the form of payment is—for example, a single life annuity. Then you must create the mathematical equation that defines the benefit formula. This formula yields the amount for the normal form of payment.

Pages Used to Define the Benefit Formula Definition

See Also

Using the Custom Statement Page

Defining the Normal Form Associated with a Benefit Formula

Access the Normal Form of Payment page.

A benefit equation yields a benefit amount in its normal form. The normal form data is used as a basis for converting to optional forms.

Payment Frequency	Select from: Lump Sum (Single), Annual (1), Semi-Annual (2), Quarterly (4), Monthly (12), Semi-Monthly (24), or Bi-Weekly (26).
Automatic Benefit for Survivor	Certain plans, most commonly public plans, offer an automatic benefit for surviving spouses. For example, Plan A specifies an automatic 25 percent benefit. The normal form of Fred’s benefit is 1000 USD per month as a single life annuity, but even if he selects a single life annuity, his wife Norma is entitled to 250 USD per month after Fred dies. Any actuarial reductions for other benefit forms, such as joint and survivor, level income option, and certain and continuous, only apply to the remaining 750 USD of his benefit. So if Fred chooses a 50 percent joint and survivor form, the 750 USD is actuarially reduced, say to 700 USD, and Fred’s benefit is 950 USD. After Fred dies, his joint and survivor beneficiary receives 350 USD per month. This beneficiary could be Norma, but could also be a child, a trust, or another person. If he does name Norma as his beneficiary, she gets the 350 USD in addition to the automatic 250 USD, for a total benefit of 600 USD per month. When a plan offers this benefit, specify the automatic continuation percentage here. The benefit is only offered if the employee has a spouse and if spouse eligibility conditions specified in the plan aliases page are met.
Form Code	Regardless of whether there is an automatic continuation, enter information about the normal payment form for both a single participant and a married participant. Select from Certain Only Installment, Joint and Survivor Annuity, Life Annuity, Level Income Option, Last to Survive Annuity, Lump Sum, Pop Up Annuity, or Reversionary Annuity. You do not normally select a form with survivor benefits (for example, a joint and survivor annuity) as the normal form for single participants. Note. Do not select Spouse J&S Demonstration, which is used for optional forms pages only. Use Joint and Survivor Annuity.
Years Certain	Enter the guaranteed number of years to set up a term certain or a certain and continuous form.
Pct Continued (percent continued)	If you chose a payment form that offers payments to a survivor (for example, Joint and Survivor or Last to Survive), use this field to indicate what percent of the initial payment the survivor will continue to receive after the death of the joint annuitant.

See Also

Using Custom Statements and Spouse Eligibility Statements

Creating the Plan Implementation and Plan Aliases

Defining Optional Forms of Payment

Defining a Benefit By Mathematical Formula

Access the Benefit Formula page.

You create the mathematical formula that defines your benefit by creating a custom statement on PA_CUSTOM_PNL. Only information specific to benefit formulas is provided here.

Statement Type	When you access this page through Define, Benefit Formula, this will always be B - Benefit Calculation.
Operand1 and Operand2	Enter your benefit components in the Operand1 and Operand2 fields.
Op1 (operator 1) and Op2 (operator 2)	Enter the mathematical operations or the Boolean operators that join them in the Op1 and Op2 fields.

Note. Be sure your formula corresponds to the payment frequency you entered on the Normal Form of Payment page. For example, if your annual benefit is 2 percent x average earnings x service, and you entered a payment frequency of monthly, you must include a “divided by twelve” clause in the formula.

You may want to create temporary variables within your benefit formula. For example, you could create two variables, TEMP01 and TEMP02, that you could then compare to find the actual benefit.

Temporary variables are very useful in complex statements, as they enable you to isolate distinct portions of the calculation and then bring them together later. For example, the following statement establishes up front that TEMP01 is average earnings up to covered compensation and TEMP03 is average earnings over covered compensation. Once the temporary variables are set, the formula can reference them to determine a benefit of 2 percent of earnings up to covered compensation plus 3 percent of earnings over covered compensation multiplied by service and by the vesting factor.

See Also

Using Interest Methods

Applying a QDRO Offset

If you want an employee’s calculation to include a QDRO offset component, you must explicitly include it in the plan benefit formula. You can either include it in your basic formula, or you can create a separate formula and use grouping logic to ensure that employees with QDROs use the formula with the offset and employees without QDROs use the basic formula.

PeopleSoft provides a special alias for your offset formula. QDRO_AMT references the fixed amount of the QDRO benefit as entered in Pension, Domestic Relations Order, Administer QDRO, QDRO Process. The system takes care of changing the value of the alias for each plan in the calculation. If there is more than one QDRO against the employee, the system automatically adds the offsets together.

Typically, you incorporate the offset through simple subtraction: the total benefit minus the QDRO_AMT is the remaining benefit. The caveat is that the subtraction is only valid when the amounts reflect the same form of payment—for example a single life annuity—and the same commencement date, usually normal retirement date.

For example, if Paul’s normal benefit is 2,000 USD per month as a single life annuity beginning at age 65, and Mary’s QDRO entitles her to 1,000 USD per month single life annuity also beginning at Paul’s age 65, you can subtract the numbers directly.

Note. It is the administrator’s responsibility to enter the appropriate QDRO amount. The system does not convert the amount based on either payment form or commencement date.

If you choose to set up rules differently depending on whether an employee has a QDRO, you apply the different definitions using grouping logic. For example, you can set up a benefit formula function result with the following components: