Adjusted Vesting Calculation

[Jegan]

The IRS documentation says upon any withdrawal the adjusted vesting calculation would be either of

(1) X = P (AB + [R x D]) - (R X D)

X is vested interest at relevant time.

P is vested percentage at relevant time.

AB is account balance at relevant time.

D is amount of the distribution.

R is the ratio of the account balance at the relevant time over the account balance after distribution.

(2) or X = P (AB+D) - D

The difference is, in 2nd formula the value of R is 1.

My question is when we can use formula 1? Under what circumstances we need to use formula 1? Any thoughts.

[Tom Poje]

this may sound silly, but what does the document say?

for example, in the basic plan document for FT William, in the section labeled forfeitures ...(re-employment)

the document I am looking at has:

(2) At any relevant time the Participant's nonforfeitable portion of the separate account will be equal to an amount ("X") determined by the formula:

X = P(AB + (R x D)) - (R x D)

For purposes of applying the formula: P is the nonforfeitable percentage at the relevant time; AB is the Account balance at the relevant time; D is the amount of the distribution; and R is the ratio of the Account balance at the relevant time to the Account balance after distribution.

............

as a side note, I believe the software I use is hard coded as the second option, you can't even select which one to use, so ultimately the software would be wrong in this situation.

[Jegan]

Thanks Tom! The software we use also using the second formula. So not 100% sure when we are suppose to use the 1st formula.

The document is available in below path. Refer page no 8.

http://www.irs.gov/pub/irs-pdf/p6389.pdf

A separate account may be established or an account balance must be maintained for the employee's interest in the plan as of the time of the distribution and at any relevant time in the future. A participant's vested interest in a separate account cannot be less than the amount determined by the first of the following formulas:

(1) X = P (AB + [R x D]) - (R X D)

X is vested interest at relevant time.

P is vested percentage at relevant time.

AB is account balance at relevant time.

D is amount of the distribution.

R is the ratio of the account balance at the relevant

time over the account balance after distribution.

The relevant time is the time at which the vested

percentage in the account cannot increase.

(2) x = P(AB + D) - D

may be used instead of the above formula. A

separate account is not needed with this formula.