Managing Employee-Paid and Employer-Paid Benefits

By using the employee-paid benefit function to establish the value of an employee's contributions to a plan, you can also establish the employer-paid portion of the benefit. How you do this depends on whether the employee contributions are:

Voluntary and thus supplement the plan benefit.
Mandatory and thus offset the cost of providing the benefit.

If employee contributions supplement the employer-paid pension benefit—for example, by employees' making voluntary contributions that increase the value of their pension benefits—then the regular benefit formula provides the employer-paid benefit. In this case, apply vesting and 415 limits to the regular plan benefit, then add the employee-paid benefit to that amount in a subsequent final benefit formula.

If employee contributions offset the cost of providing the benefit, but don't change the actual benefit amount, subtract the employee-paid benefit from the total benefit to find the employer-paid portion. Then, apply vesting rules and 415 limits to the employer portion, and finally add the employer-paid portion back to the employee-paid portion in a subsequent final benefit.

The following discusses how to set up the jobstream for either of these situations in order to handle the three areas where you may have to treat the employee- and employer-paid portions differently:

Vesting: Isolate the employer-paid portion and apply vesting rules to that portion only.
The 415 limits: You need to have both benefit formula and optional forms function results for the employer-paid benefit because the benefit formula feeds values to optional forms, which in turn feeds values to 415 limits processing.

Important! The limits are applied after any total (recombined) benefit is calculated. This means that the total benefit is based on the unlimited version of the employer-paid benefit and is incorrect if limits are applied.

Note: You may need to consider the employee contributions in determining the 415 limits that are applicable to defined contribution plans. Pension Administration doesn't calculate any defined contribution limits.

Payouts: If employees are entitled to withdraw contributions as lump sums at benefit commencement, you may pay out the employee-paid and employer-paid portions separately.

This means that you need both benefit formula and optional forms function results for both portions of the benefit so that the system can feed the benefit amount to the payment process. If the two employee-paid and employer-paid portions are a single inseparable benefit, you only need one benefit formula for the combined amount.

If employee contributions supplement the benefit, the end of the jobstream includes some or all of the following function results:

Order	Function Result	Description
1	Employee-Paid Benefit.	The annuity value of employee contributions.
2	Benefit Formula - Employee.	The employee-paid portion is put into a benefit formula so it can flow through to optional forms and then into the payment schedule. You only need this if employees can take the employee-paid and employer-paid portions separately.
3	Optional Forms - Employee.	Optional forms that are associated with an employee-paid benefit and are only needed if you let employees receive separate payments for the employee-paid and employer-paid portions of the benefit.
4	Benefit Formula - Employer.	Regular plan benefit, all employer funded. Vesting rules should be applied.
5	Optional Forms - Employer.	Optional forms for the employer-paid benefit are used only for: Paying out this portion of the benefit if employees can take the two portions separately. Applying 415 limits. However, if the benefit is reduced by 415 limits, the final recombined benefit (benefit formula and optional forms) is incorrect because they're processed before 415 limits, and are, therefore, based on the unlimited amount, not the 415-limited amount. Work around this limitation by running a second calculation in which you override the employer benefit with the limited result.
6	Benefit Formula - Final Combined.	Total benefit. Add the employer- and employee-paid portions of the benefit. Make sure that benefits are in the same payment form and frequency—for example, the monthly value of a single life annuity. If necessary, divide annual amounts by 12, or use the factor utility, to ensure that both benefits are in the same payment form. Also be aware that this amount does not include 415 limits that are applied to the employer-paid benefit.
7	Optional Forms - Final Combined.	Optional forms that are associated with the final combined benefit.
8	415 Limits.	The 415 limits function is always processed at the end, regardless of its position in the plan implementation. Therefore, you should place it at the end to be consistent. Processing for 415 limits adjusts the optional forms results for the employer-paid benefit, but it doesn't recalculate the combined benefit.

If employee contributions offset a portion of the employer cost, the jobstream is different from the one described previously.

Order	Function	Function Result Description
1	Benefit Formula - Total Before Vesting.	Regular plan benefit with no vesting rules applied.
5	Benefit Formula - Employer.	The employer-paid benefit is calculated by subtracting the employee-paid benefit (row 2 or 3) from the regular plan benefit (row 1). This is also where you apply the vesting percentage. You can put this formula in a custom statement instead of a benefit formula if: You don't need to see this value in the calculation results, and You're not going to apply 415 limits, which get the benefit amount from the benefit formula through optional forms.

Order

Function

Function Result Description

Benefit Formula - Total Before Vesting.

Regular plan benefit with no vesting rules applied.

Benefit Formula - Employer.

The employer-paid benefit is calculated by subtracting the employee-paid benefit (row 2 or 3) from the regular plan benefit (row 1). This is also where you apply the vesting percentage.

You can put this formula in a custom statement instead of a benefit formula if:

You don't need to see this value in the calculation results, and
You're not going to apply 415 limits, which get the benefit amount from the benefit formula through optional forms.

Warning! The system does not allow you to recombine employee-paid and employer-paid benefit for highly compensated employees. To work around this limitation: Run an initial calculation to find the limited employer-paid portion. Then run a second calculation, where you override the employer-paid benefit with the limited amount. You must do this in order to provide the appropriate amount for the combined benefit formula and optional forms.