employee contributions in a DB plan

[Guest lisbetf]

How do you modify your funding method to take into account mandatory employee contributions? It's been so long since I worked on a contributory DB plan that I can't remember how to handle it.

Thanks for any help you may provide.

[david rigby]

The first thing to do is refuse to work on this plan!!!

Then, triple your fee quote (it won't be enough).

[Guest lisbetf]

Don't tell me I have STUMPED you!

[david rigby]

The most common method of recognizing this is to determine the normal cost as a whole. Then subtract the expected EE contributions to yield the ER normal cost. Note that Line 9b of the Schedule B asks for the "Employer' normal cost".

Although not exactly on point, the above is supported by Q&A 97-10 from the GrayBook:

"Funding: Expected Increase in Current Liability for Contributory Plans

For a contributory DB plan, should the "expected increase in current liability due to benefits accruing during the plan year" (shown in lines 1d(2)(B) and 1d(3)(B) of the Schedule b) be a net amount (i.e., only employer-provided) or a gross amount including the employee-provided value?

RESPONSE

The net value should be used, since it is used as an offset to the employer normal cost from the FSA when calculating the additional funding charge."

Notice that, except in the case of the Aggregate Method, this means that the Employer pays the full cost of any amortization (gain/loss, plan amendments, asssumption changes, etc.)

[mwyatt]

Jeez, has your plan sponsor been listening to alot of oldies radio stations? Haven't seen a DB plan requiring after-tax employee contributions as a condition of participation since 1984! Have they heard of that newfangled invention called a four-oh-one-kay plan?