Accrued to Date Method

[Guest lforesz]

I am trying to determine how to test using the Accrued to Date Method as opposed to the annual method and am having a hard time finding any guidance on how to do this. Does anyone have a good cite?

I greatly appreciate it.

[Tom Poje]

1.401(a)(4)-8(B)(2)

take begining balance plus current contribution and forfeitures / years in which employee benefitted.

use average comp.

see (ii) how to treat gains/losses

this all depends on your measurement period.

the only example I have is:

1993 contr 420.63

1994 earnings 29.44

1994 contrib 630

1995 earnings at 3% (obviously this will change with actual earnings)

measurement period 1/1/94 - 12/31/95

1.Acct bal at end of measurement period = 1869.47

2.Acct balance at begining of meas per. = 450.07 (420.63+29.44

3.Balance plus Interest on this balance (at 3%) = 463.57

4.increase in account balancedue to contributions during the measurement period = 1869.47 - 463.57 = 1405.90

figure out your e-bar like usual, except you would divide by 2 since you ahve a 2 year period, use average comp

[actuarysmith]

I also have some interest in the accrued-to-date method. However, I have no real practical experisence in its' use.

Is it generally a true statement that it is most useful when you have had a DC plan in place for a number of years that used either integrated or comp/comp allocation formulas?

It seems to me that this is the only case when using accrued-to-date would really make a difference.

[Guest lforesz]

Hi,

So in reading 1.401(a)(4)-8(B)(2)(ii), earnings and losses on the account balances during the measurement period need to be removed/added back to determine the adjusted account balance to load into the test? They dont' make this easy do they?

Please let me know if you agree.

[AndyH]

Lori F., that's correct. Earnings on the balance already in existence at the start of the measurement date must be backed out, but you can, if you wish, include earnings attributable to contributions during the measurement period.

Actuarysmith, yes, the examples you've cited are the most common uses for accrued to date, but any situation in which there have been changes, to compensation or contribution levels, for example, can make this method useful.

And, when you're general testing a DB plan I find it often easier to use accrued to date, because the resulting accrual rate can be set to equal the formula in a unit accrual final pay plan, i.e. if the formula is 1.5% of average comp, then you can use 1.5% as your accrual rate if you define testing comp in the same manner as plan comp.