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DB Precision will calculate the Social Security Primary Insurance Amount (PIA) based upon Social Security Administration rules as well as items such as bend points, National Average Wage (NAW), and the Taxable Wage Base (TWB).
All of the items required to calculate PIA are automatically updated each year and do not require additional action by users.
If you have the true Social Security earnings history for a person, DB Precision will match to-the-penny amounts calculated by the Social Security Administration. However, most calculations in DB Precision use pension earnings as an approximation for these earnings and usually do not include a full history of wages. Therefore, while close, Social Security amounts calculated in DB Precision will generally not equal amounts supplied by the Social Security Administration.
PIA is set up within a Plan Document by creating one or more Social Security Definitions.
To create a Social Security Definition, open the Plan Document, right-click Social Security PIA, and select Add from the resulting menu.
This will create a new definition and initial provision. Rename the new definition and then double-click on the provision to open the Social Security Provision screen.
Most plans have a variable law year which has a law year that resets either at the start of the plan year or calendar year.
Social Security amounts are based upon a person's calendar-year earnings. Therefore, when setting up a Social Security Definition, you must specify all of the earnings amounts that should be used as an estimate of Social Security earnings. This is usually any Reported Amounts that is a pensionable earnings amount for the plan.
You must also indicate how earnings amounts should be projected backwards and forwards from known amounts. The standard is to project level-future earnings and to project backwards using the National Average Wage.
You have the option to only use the latest earnings amount but this is generally only used for testing purposes to match amounts previously calculated. It is recommended that you use a full history of wages to better approximate actual amounts calculated by the Social Security Administration.
If a plan allows participants to optionally supply a full Social Security Wage history at retirement, you should create a Reported Amount for this ("EarningsPIA" for example). This amount should have a reporting frequency of annual with a calendar year period.
Add this amount to the Social Security Earnings Reported Amounts. Double-click on this amount and check the box "Wages Reported to Social Security Administration". This will cause DB Precision to ignore all other amounts and use this amount instead when calculating Social Security.
Pension plans that use Social Security will define the start date to use when calculating amounts. For benefit statements, most plans will display amounts calculated as of Normal Retirement Date or age 65.