Setting Up Contributory Plans

This chapter provides an overview of contributory plans and discusses how to:

• Deduct pension contributions.

• Track contributions.

• Manage employee-paid and employer-paid benefits.

• Ensure that employees recover their contributions.

• Implement service buyback.

• Implement service purchase provisions.

Understanding Contributory Plans

Contributory plans present some special considerations when you implement Pension Administration.

1. If you use PeopleSoft HR: Manage Base Benefits and PeopleSoft Payroll for North America, you need to establish deduction processing in order to take pension contributions from employee paychecks.

2. You need to track the contributions and interest that employees earn.

3. You need to determine how much of the final benefit is attributable to the employee contributions, and treat the employee-paid and employer-paid benefits differently. For example:

   1. Vesting: Employees are always 100 percent vested in their contributions, while the employer-paid portion of a benefit is subject to plan vesting rules.

   2. Of the 415 limits on defined benefit plans: You only apply the limits to the employer-paid portion. (Employee contributions, mandatory or voluntary, are considered a defined contribution plan.)

   3. Optional forms of payment: Employees may be entitled to withdraw contributions as a lump sum at benefit commencement, leaving the employer-paid portion to be paid out as an annuity.

4. You need to keep track of the final employee contributory balances against benefits that are received, because employees are entitled to full recovery of their contributions. Furthermore, any after-tax contributions are recovered as nontaxable benefits, while the interest is taxable.

5. Contributory plan participants can often withdraw their contributions when they terminate, forfeiting any associated service. Then, if an employee is rehired, the plan may enable the employee to repay the contributions with interest in order to buy back the forfeited service.

6. Contributory plans may enable employees to purchase service for certain types of periods, such as time worked under another plan, or time spent on military leave. To purchase the service, employees must give the plan an amount of money that is equivalent to what they would have contributed had they been participating during that time. The purchase amount also includes appropriate interest.

Deducting Pension Contributions

Set up all the pension plans in PeopleSoft HR: Manage Base Benefits before establishing the plan's calculation rules. When you deal with contributory plans, you have to perform some extra steps during plan setup:

1. Ensure that each plan has a unique plan type.

   The Manage Base Benefits business process enables employees to enroll in only one plan per plan type—for example, one medical plan and one dental plan. If the employees ever contribute to more than one plan at a time, you need to ensure that each plan has a unique plan type. PeopleSoft delivers six different plan types for U.S. pension plans (types 82 through 87); they are translate values.

2. Create a deduction code for each contributory plan.

3. Set up the pension plan in the Benefit Plan table and the Pension Plan table just as you set up a noncontributory plan—except that you enter a default deduction code in the Pension Plan Table page.

4. Add the pension plan to a benefit program.

5. On an ongoing basis, enroll employees in the pension plans.

   "Enrolling" means that you sign up the employees for deductions. It has nothing to do with an employee's eligibility, as determined by the Pension Administration eligibility function.

See Also

Understanding the Deduction Table

Understanding Pension Plans

Building Base Benefit Programs

Enrolling Participants

Tracking Contributions

Pension Administration provides three functions specifically for contributory plans:

• Consolidated Contributions gathers contributory information from payroll data.

• Employee Accounts tracks the accumulation of the contributions and any interest up to the event date.

• Employee Paid Benefit projects the account balance to the normal retirement date if necessary, then actuarially converts the balance to a single-life annuity.

Use the Review Consolidation Results - Contribution History page to view the results of periodic consolidation processing and override values for particular periods.

Periodic processing maintains consolidated contributions and employee accounts. During a calculation, the system uses the existing employee account information, and brings it up to the specified event date. If you run periodic processing beyond the event date, this extra information can affect the calculation results.

Use the Plan History - Employee Account History page to view the results of periodic processing for employee accounts. You cannot modify or override data on this page but you can:

• Override the consolidation data that was the source for the employee account history.

• Enter an adjustment directly into the account on the Employee Acct Adj page. The system applies the adjustments during the next periodic processing and determines the employee-paid benefit during a calculation.

See Also

Consolidating Payroll Data

Defining Employee Accounts

Defining Employee-Paid Benefits

Viewing an Employee's Consolidated Contributions

Adjusting Contributory Accounts

Viewing Employee Account History

Managing Employee-Paid and Employer-Paid Benefits

By using the employee-paid benefit function to establish the value of an employee's contributions to a plan, you can also establish the employer-paid portion of the benefit. How you do this depends on whether the employee contributions are:

• Voluntary and thus supplement the plan benefit.

• Mandatory and thus offset the cost of providing the benefit.

If employee contributions supplement the employer-paid pension benefit—for example, by employees' making voluntary contributions that increase the value of their pension benefits—then the regular benefit formula provides the employer-paid benefit. In this case, apply vesting and 415 limits to the regular plan benefit, then add the employee-paid benefit to that amount in a subsequent final benefit formula.

If employee contributions offset the cost of providing the benefit, but don't change the actual benefit amount, subtract the employee-paid benefit from the total benefit to find the employer-paid portion. Then, apply vesting rules and 415 limits to the employer portion, and finally add the employer-paid portion back to the employee-paid portion in a subsequent final benefit.

The following discusses how to set up the jobstream for either of these situations in order to handle the three areas where you may have to treat the employee- and employer-paid portions differently:

• Vesting: Isolate the employer-paid portion and apply vesting rules to that portion only.

• The 415 limits: You need to have both benefit formula and optional forms function results for the employer-paid benefit because the benefit formula feeds values to optional forms, which in turn feeds values to 415 limits processing.

  Important! The limits are applied after any total (recombined) benefit is calculated. This means that the total benefit is based on the unlimited version of the employer-paid benefit and is incorrect if limits are applied.

Note. You may need to consider the employee contributions in determining the 415 limits that are applicable to defined contribution plans. Pension Administration doesn't calculate any defined contribution limits.

Payouts: If employees are entitled to withdraw contributions as lump sums at benefit commencement, you may pay out the employee-paid and employer-paid portions separately.

This means that you need both benefit formula and optional forms function results for both portions of the benefit so that the system can feed the benefit amount to the payment process. If the two employee-paid and employer-paid portions are a single inseparable benefit, you only need one benefit formula for the combined amount.

If employee contributions supplement the benefit, the end of the jobstream includes some or all of the following function results:

If employee contributions offset a portion of the employer cost, the jobstream is different from the one described previously. There is one new row (Order 1 below) and one changed row (Order 5 below and Order 4 in the previous table). The table below describes these differences:

Warning! The system does not allow you to recombine employee-paid and employer-paid benefit for highly compensated employees. To work around this limitation: Run an initial calculation to find the limited employer-paid portion. Then run a second calculation, where you override the employer-paid benefit with the limited amount. You must do this in order to provide the appropriate amount for the combined benefit formula and optional forms.

Ensuring That Employees Recover Their Contributions

You need to keep track of the final employee contributory balances and the benefits employees receive. Employees are entitled to full recovery of their contributions.

Setting Parameters in an Optional Forms Definition

After-tax contributions are recovered as nontaxable benefits. Use the General Parameters Page to set parameters in an optional forms definition.

Identifying the Appropriate System Employee Account

When you run the payment process for the first time for an employee, the system looks up the final employee account balances for the plan in order to track payments against these balances. Use the Plan Aliases page to identify the appropriate system employee account.

Viewing Final Account Balances

The pension payment process copies the account information to a payment summary record. The system also uses this record to store a running balance of the total benefits that are paid and the nontaxable benefit that is paid. Use the Review Balances and Totals page to view the final account balances and the running payment totals.

Every time you make payments, the system compares an employee's final after-tax contributions to the total nontaxable benefit that the plan pays out. When the employee recovers all the after-tax contributions as nontaxable income, the system no longer treats any portion of the retiree's benefit payments as nontaxable; the system overrides any nontaxable portion with zero.

See Also

Creating the Plan Implementation and Plan Aliases

Tracking Balances and Totals

Implementing Service Buyback

Service buyback has two aspects:

• Administering the withdrawal of contributions, and setting the associated employee account and service accrual to zeroes.

• Tracking repayments and the associated service credits.

In the employee account definitions, you establish a special type of employee account for tracking withdrawals. You can pay employees from this account and accept repayments into this account. By entering a consolidated deductions data source in this definition, the system can automatically credit this account with repayments that are made through payroll deductions.

On the Function Result page, you associate the withdrawal account with a parent account, the master contributory account, and with a particular service accrual. These associations ensure that transactions that are in the withdrawal account are automatically rolled up to the corresponding contribution and service accruals. You can specify that service be restored on full payment, on any payment, or on a prorated basis.

See Also

Administering Contributory Plans

Implementing Service Purchase Provisions

In certain situations, employees might purchase service for a period by paying the contributions and interest that a plan would have collected if the employee had worked and contributed during that period. Examples are the purchase of service for periods of military leave, or for periods during which an employee was working but was not eligible to participate in the plan.

In the employee account definitions, you establish a special type of account for tracking employees' payments toward service purchase. By entering a consolidated deductions data source in this definition, you provide a way for payments that are made through payroll deductions to be automatically credited to the account.

On the Function Result page, you associate the purchase account with a parent account, the master contributory account, and with a particular service account, to ensure that transactions in the purchase account are automatically rolled up to the corresponding contribution and service accruals. You can specify that service be credited on full payment, on any payment, or on a prorated basis.

When setting up a service purchase program for an employee, a pension administrator needs to calculate the amount of purchasable service. The pages where the administrator sets this up include a utility to help calculate the purchasable service amount. You need to provide calculation rules, including a duration option, for this service calculator. You do this on the Plan Aliases page.

See Also

Administering Contributory Plans