When a plan requires employees to contribute to a pension plan, that plan is referred to as a "contributory plan". Though rare in corporate plans, they are very common with municipal and government plans.
There are several items generally required in DB Precision when a plan is contributory.
The following items must commonly be configured for contributory plans:
- Account Definitions: for any contributory plan, you will need to set up an Account Definition for calculating the balance with interest credits. If a plan also tracks contributions without interest, you should set up a second account which is the same as the original Account Definition except that there is no interest crediting. For each Account Provision of these accounts, make sure to indicate an Account Type of "Employee Contributions".
- Benefit Payment Set Employee Contributions: on the Benefit Payment Set Provision Employee Contributions screen, make sure to select a Benefit Determination Method that is something other than "No employee-paid benefit". You will also need to reference the Account Definition for employee contributions with interest as created above.
- Dynamically Calculated Benefits: for any participants that are non-vested but are due a return of their contributions with interest, add a benefit with the Benefit Payment Set from above is selected, where that the Form of Payment is "Lump Sum - Return of Employee Contributions", and Benefit Amount Determination is set to "Dynamically Calculated" on the Benefit Payment screen. Please note that such participants will be treated as terminated vested until they are paid out.
When converting a plan that includes employee contributions to DB Precision, you need to prove that the roll-forward of contributions with interest is properly working.
To do this, you should import all contribution information as of one year prior to the conversion date and then code DB Precision. You then need to match balances as of the conversion date to prove that the interest accumulation matches prior methodology.
