Setting Up Interest Methods

Level Rate

Select this option unless you use your own user code.

User Code

Select this option to use your own user code.

Annual or Monthly

Indicate whether the this method provides an annual or monthly interest rate.

Rate Source Type

Select from the following options:

• Constant Rate: Enter the annual or monthly constant interest rate in the Interest Rate field.

• Custom Statement Enter an alias in the Statement Name field

• Table Lookup: Enter a table lookup alias in the Rate Table Name field.

  This option provides a single rate to use at all times. It is not commonly used. More likely you want to vary the interest rate—for example, to get the federal midterm rates at the beginning of each year. In this case, use a program-generated table lookup instead.

• Program Generated Table Lookup: The option enables you to look up interest rates that vary over time. For example, if you apply interest based on the federal midterm rates that are in effect on the first day of the month, you vary the rate. Therefore, you use a program-generated table lookup.

  For this method, your lookup is always based on a date. The term program-generated refers to the fact that the function using this interest rule has to provide the date for each period.

  Enter the Table Lookup Alias in the Time Aware Table field, and select the type of lookup date in the Time Aware Table Option field.

Time Aware Table

If you selected Program Generated Table Lookup in the Rate Source Type field, select a time-aware table to use.

Time Aware Table Option

If you selected Program Generated Table Lookup in the Rate Source Type field, choose which date the to use to look up the interest rate for each period. The options are First Day of Calendar Year, First Day of Period, First Day of Plan Year, and Last Day of Period.

Method

Select from these options: No Interest, Full Period Interest, Fractional Interest for Period, or User Code.

You can use the No Interest option for both full and partial periods.

If you choose Fractional Interest for Period, you can approximate the interest that would be credited if contributions were collected at intervals throughout the period. For example, if contributions were collected monthly over an annual period, employees would receive 12 months of interest on the first contribution, then 11 months of interest on the next, and so on until they receive one month of interest on the last month. An approximation of the total interest on the consolidated annual amount would be the average amount of interest, which would be five and a half months of interest, or 11/24 of the year.

Numerator and Denominator

If the method is Fractional Interest for Period, enter the numerator and denominator of the fraction in these fields.

Interest Type

If the method is Fractional Interest for Period, choose whether to use Compound Interest or Simple Interest.

• When you select Compound Interest, the interest formula is:

  [Amount × (1 + rate) period fraction] − amount

• When you select Simple Interest, the interest formula is:

  Amount × rate × period fraction

Partial Interest, Using

This option prorates interest over the number of days in the partial period.

With partial interest, you can select compound or simple interest:

• When you select Compound Interest, the interest formula is:

  [Amount × (1 + rate) period fraction] − amount

• When you select Simple Interest, the interest formula is:

  Amount × rate × period fraction