Balance Forward Earning Accounting

Hello everyone,

Could someone please explain to me what balance forward earning accounting represent? I'm new to the benefit plan world, and I noted that our recordkeeper has an adjustment for "Balance Forward Earnings to Allocate". I understand that this balance is allocated to each plan participant however I don't understand the basis behind this adjustment.

Thank you for all your help!

Armand 

Balance forward method of recordkeeping is what all plans were before computers got to the point you could do daily recordkeeping.

Typically balance forward is done with pooled investments.  That is to say everyone is in the same investments or pools of investments.  So everyone in the stock fund is in the same stock fund.  Unlike daily where we can tell you how many shares or units of the fund you have this is just a large pool and none of the investments has anyone's "name" attached to is. 

So when it come time to allocate earnings you have to come up with a method.

To use a simple example assume no new money comes into or goes out the plan during the year except earnings.  Someone whose account that represented 2% of the pooled account's value would get 2% of the earnings. 

In the real world there is money coming in and going out.  So you have to make assumptions/rules on how you handle those.

Typical was Beg Bal - dist - forf + (50% of 4k def during the period)  It was always great if these was defined in the plan document but it wasn't always there. 

So you would use that formula for on each person's balance as the numerator and the sum of everyone's numerators is the denominator.  That got you the ratio of any given person's share of the earnings. 

That is the short balance forward history lesson.  I have never worked anything but balanced forward back when I did PSP and 4k work.  Now that I work ESOPs they pretty much are all balance forward for the cash investments. 

Hope that answered your question.

BTW, consider that "earnings" is most often tracked as "net".  That is, the fund has some investment return but it also might pay some expenses, so the net is considered "earnings to allocate".

I officially feel old.....

Balance forward....Basis formulas, reconciliations, trust earnings, quarterly participant statements, quarterly processing, etc. Those were the good ol' days.... I remember daily valuations and units seemed so new and honestly so weird....

I actually had the pleasure of programming a very weird balance forward basis formula in FoxPro back in the day because it didnt' fit into any system we currently had.  Each contribution was actually weighted based on the # days in the trust for the quarter (usually it was beginning balance + 1/2 contributions + 1/2 loan payments for those that had loans - distributions -loans for the quarter in most formulas that we saw).   The client wanted to keep the formula and pay us to program a new system rather than change their basis formula....crazy, it was!

Some days I wish for those good ol' days....

On 8/18/2017 at 1:26 PM, hr for me said:

I officially feel old.....

Balance forward....Basis formulas, reconciliations, trust earnings, quarterly participant statements, quarterly processing, etc. Those were the good ol' days.... I remember daily valuations and units seemed so new and honestly so weird....

I actually had the pleasure of programming a very weird balance forward basis formula in FoxPro back in the day because it didnt' fit into any system we currently had.  Each contribution was actually weighted based on the # days in the trust for the quarter (usually it was beginning balance + 1/2 contributions + 1/2 loan payments for those that had loans - distributions -loans for the quarter in most formulas that we saw).   The client wanted to keep the formula and pay us to program a new system rather than change their basis formula....crazy, it was!

Some days I wish for those good ol' days....

I remember when the company I worked for years ago started its daily group.  A co-worker of mine became the team lead of the daily group and I became the team lead of the balance forward group.  He told me I was the team lead of yesterday's technology and it was a matter of time before I got laid off.  Fast forward a few years and the company decided the liabilities of a daily group was too high and they shut that group down.  It was him not me that brought up that comment and we had a good laugh at lunch on his last day there.  I did get laid off eventually but it was a fair number of years later.  So he was right in a sense.

I don't know if I could ever really do daily work day in and day out so it is a good thing I like ESOPs.  But I am also feeling my age with these kinds of questions. 

dBase was much easier to program in than FoxPro. 

12 hours ago, Mike Preston said:

dBase was much easier to program in than FoxPro. 

Of course the youngsters reading this have no idea what dBase was!

But I could do ANYTHING in FoxPro... I so miss it now -- I was out of the industry for 7 years and couldn't believe when I came back that it no longer existed!

I can't even figure out how to set an alarm clock, much less program anything...

Once you get the hang of it, Access still gives you freedom.

As a 'Kid' who is learning big data, I must say the old method although redundant made me wonder how did the people at that time managed to do all that without much assistance from the  computer itself. 

3 hours ago, David74 said:

As a 'Kid' who is learning big data, I must say the old method although redundant made me wonder how did the people at that time managed to do all that without much assistance from the  computer itself. 

when I started mid-90s, we had  mainframes and magnetic tapes...programs that you ran and then waited for result .... lots and lots of backups at different points in case a mistake was made.   You documented each step on paper so if you had to go back and redo, you knew exactly where in the process you were.  Sometimes that meant asking the guys in the data center to put on an older tape....got to know them too well.

Honestly, while it was "slower", much less was immediately expected by clients and their employees. No instant anything!  We usually had from 4-8 weeks from end of quarter to get all the clients processed. While there were a few 16+ hour days, there were also slow times to catch a breath.