fractional accrual

[Tom Poje]

ee from date of initial participation could have worked 42 years NRD = 1/1/30

they worked 5 years, quit 1 year then returned and worked another 12 years. (thus when they returned they could only work 36 more years to retirement)

[entered plan 1/1/88, quit Dec 92, returned Oct 93, calendar year plan]

what is the fractional accrual?

rev ruling 81-11 seems to say you would calculate as follows:

first accrual period + second accrual period

5 / 42 + (1 - 5/42)(12 / 36) = .4127

so this person comes out ahead of someone who never quit and worked 17 straight years?

e.g. 17 / 42 = .4048.

the second method under this rev ruling looks like you would have

17 / 41 = .4146

[Mike Preston]

ee from date of initial participation could have worked 42 years NRD = 1/1/30

they worked 5 years, quit 1 year then returned and worked another 12 years. (thus when they returned they could only work 36 more years to retirement)

[entered plan 1/1/88, quit Dec 92, returned Oct 93, calendar year plan]

what is the fractional accrual?

rev ruling 81-11 seems to say you would calculate as follows:

first accrual period + second accrual period

5 / 42 + (1 - 5/42)(12 / 36) = .4127

so this person comes out ahead of someone who never quit and worked 17 straight years?

e.g. 17 / 42 = .4048.

the second method under this rev ruling looks like you would have

17 / 41 = .4146

What is your question? It depends on which of the methods you want to use as to which is the correct accrual. But your comparison is misguided. Instead of saying that he should be compared against somebody who never quit, was hired the same day, and who had the same (17) length of service, you should be comparing against somebody who was hired the same day, who had never quit and would therefore have the 18 years of service. That is 18/42 = .42857.

Hence, he is less accrued than somebody who had never quit.

But it is absolutely expected that he would have a greater accrual than somebody who has 17 years in the bank and has 25 to go, because he has 17 years in the bank and only 24 left to go.

If they both end up at 1.000000 when they work their last year, mathematically it is expected that at each point along the way, the person with one less in the denominator will have a greater fraction.

[david rigby]

A related earlier discussion.

http://benefitslink.com/boards/index.php?showtopic=5211