How many plans use balance-forward?

Based on your experience and your recent observations, what percentage of retirement plans use a balance-forward method to allocate participants’ individual accounts?

"Balance-forward" commonly is used to refer to a plan accounting method where historical transactions that occur in an account are summed up to a specific point time - typically up to the beginning of a plan year - or up to the date which provides the basis for an allocation.  This technique was used to condense the data needed to be stored and processed which saved computer storage and decreased the amount of computer resources and time it took to perform an allocation.  Almost all legacy recordkeeping systems used some form of balance-forward accounting, and several have an annual "roll forward" process for each new plan year.  With the drop in the relative cost of storage and increase in computer power, recordkeeping can keep all transaction history available which allows them to easily compute a participant's balance at any point in time.

The basis for an allocation is the amount that is used to pro-rate a participant's allocable share of an amount that is being spread across all participants included in the allocation.  Employer contribution, interest, dividends, and expenses are typical examples of amounts that are allocated across all participants.  The plan document may provide the formula for calculating the allocation basis for each type of transaction.  If it does not, then the calculation should be well-documented in the plan accounting documentation.  For example, an employer contribution may be allocated over plan compensation.  Interest may be allocated over all participants who are in the fund in which the interest was paid.  Expenses may be allocated over participants' total account balance.

Some plans use only balance-forward method for allocating income.  Typically, the investment is in a pooled fund that is valued periodically and the income earned over the period is allocated over the account's basis.  Some plans use daily valuation for daily-valued investments, but may also have one or more pooled funds.

There is a ton more detail to plan accounting. 

If your question is related to plans that use only balance-forward accounting, my experience is they are very rare and typically are used in small plans that only have a profit sharing contribution.

If your question is related to any plans that use balance-forward accounting, my experience is every plan does at some level for some transactions in some accounts.

Thank you!!!

It is pretty low in the "normal" DC plan world (under 10%).  In the ESOP world it is the norm.  Outside ESOPs the only plans I typically see that balance forward is because the client wants something daily value won't do/allow for.   Examples would be:

The client wants a very specific investment manager to run the investments. I had a client like this.  Along with quarterly certificates for their employees they wanted me to complete a detail spreadsheet to help them track the return their investment managers had gotten the plan.   If a manager didn't hit their benchmark too many quarters the client got a new investment manager.   They were brutal to the investment managers.  It wasn't the many quarters.  But if you saw the participant's balances you would be amazed.  The client put in almost 25% of pay and they got really good returns. 

They want the certificates to show and record things that they can''t find from a daily platform.  I had a client that wanted all kinds of historical data on the certificates that no daily platform would agree to do.  

The preferred distribution method wasn't common.

It is that kind of stuff.

Most of the examples I am thinking of are Profit Sharing Plans with a few Money Purchase Plans.  I can't remember the last time I saw a 401(k) done balance forward.  The expectation of the employees is they get daily values and control of the money coming from their paycheck.  But pure employer money will now and then be different.

The thing is this is all part of a package of desires by the client that costs more typically and they are willing to pay for what they want. All of the examples I have worked on over the decades were very high demanding in what they wanted from their TPA but they were also willing to pay for top of the line service.  So you didn't mind giving them that service.  

Hope that helps. 

When I owned my tpa business, out of 450 clients I had aproximately 70 balance forward plans.  A handfull of annual and semi-annual, pooled profit sharing plans and quarterly 401k's.  Some 401ks had participant direction and some in a pooled account.  I also consider brokerage account plans as balance forward.  I had around 15 plans where every participant had a brokerage account and I reconciled those plans annually.

Most of the plans I had were small plans, under 100 lives.  Many of the balance forward clients were banking relationships, assets managed in the trust department, I did the tpa work.

I honestly believe there are a lot of balance forward plans getting done at small accounting frims, in excel, incorrectly.