Earnings Allocation Earnings Allocation

Earnings Allocation

Jane Nickalls Jane Nickalls

The formula for earnings allocation is set on the Work with Sources screen - Plan Specifications=>Work with Sources/Inv Accounts. When you plan to allocate earnings, always select yes to the option at the top of the source screen: 'Use Investment Accounts to track Participant balances'. Add at least one investment account; enter an AccountID and Account Name - the Account Description is optional. The Type should be either Cash or Brokerage - cash means that earnings are being allocated across all participants in the plan whereas brokerage is used when you want to enter an amount per participant, e.g. when participants have their own self directed brokerage account.

Back on the source screen, there are two options for the earnings allocation method used - Traditional Method and All Transactions, and you set this for each source. The traditional method uses the beginning balance and deducts amounts going out, according to the percentage entered in 'Curr Yr Factor'. It then adds in contributions according to the percentage entered in 'Curr Yr Contrib Factor'. The all transactions method uses the beginning balance, adds amounts coming in (other than contributions), and deducts amounts going out, both according to the percentage entered in 'Curr Yr Factor'. It then adds in contributions according to the percentage entered in 'Curr Yr Contrib Factor'.  With either method the end result is the basis used for each participant to allocate their earnings. Below is an example, assuming the current year factor is 100% and the current year contribution factor is 50%.

Traditional Method - beginning balance is adjusted by

Subtracting 100% of

  • Distributions
  • In-service distributions ADP/ACP Corrective distributions
  • Insurance premium payments
  • Transfers Out,
  • Forfeitures
  • Loan Distributions

Adding 50% of:

  • Contributions

All Transactions - beginning balance is adjusted by

Subtracting 100% of

  • Distributions
  • In-service distributions ADP/ACP Corrective distributions
  • Insurance premium payments Transfers Out,
  • Forfeitures
  • Loan Distributions

Adding 100% of

  • Transfers In
  • Loan Repayments
  • Forfeiture Allocations

Adding 50% of:

  • Contributions

 

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