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Final Average Salary

This topic contains the parameters that tell ProAdmin how to customize final average salary. The standard operator is based upon the <Base Salary Set> definition in the Census Specifications, salaries in consecutive years only, and salaries limited to the U.S. Internal Revenue Code section 401(a)(17) compensation limit.

There are four (4) topics that contain the information that you can set in the Final Average Salary custom operator. They are Salaries & Basis, Counting, Limits, and Conditions.

Salaries & Basis

Included Salary Definition Set(s) allows you to select one or more Salary Definition Sets from those entries already defined in the Salary Definition Set Library. The Multiplier indicates the weight to give the salary. The multiplier can be useful, for example, if you have one salary definition that includes base and overtime and another that just includes overtime. If you select both and set the overtime to have a multiplier of -1, that salary would be subtracted from the other one to derive the base salary.

The Edit Salary Sets button allows you to access the Salary Definition Set library to create new definitions or modify existing ones.

By default the Final average is based on: plan year salaries, but you can choose to calculate the final average based on calendar year salaries, anniversary year salaries, or monthly (or quarterly, semi-monthly, bi-weekly, weekly) salaries.

When you select monthly (or quarterly, semi-monthly, bi-weekly, weekly) salaries, the final average is based on the most frequent common measurement period of the selected Salary Definition Sets. In addition, this choice enables the When less than a year of salaries, annualize subject to salary limit checkbox, providing these two options for calculating the annual average:

  1. If the box is checked, multiply the monthly (or quarterly, semi-monthly, bi-weekly, weekly) final average salary by the expected number of periods in a year (i.e., 12, 4, 24, 26, 52), and limit the result to the applicable annual salary limit, which is the salary limit in effect for the first salary used in the final average. For most usages of final average salary, this method produces the desired result, and is the default.

  2. If the box is not checked, the annual final average salary is the sum of the limited salaries used to calculate the final average salary. If the basis formula of your career average or cash balance accrual definition is based on a final average salary (rare) and you are using the "Apply annualized rate to career avg./cash bal.  basis formula" option (default), then this method is appropriate. For example, for people who work a partial year (and earn a partial year of salary), the accrual would be based on a "partial" basis and an "annual" rate. If you instead check the box, it would result in an "annual" basis and an "annual" rate which would probably overstate the desired accrual for the year.

Check Final average salaries in consecutive measurement periods only to specify that only consecutive salaries may be used to calculate the final average salary. If the box is unchecked, then non-consecutive salaries may be used to calculate the final average salary. For example, if this box is checked, 3 #FASCUSTOM 10 will be calculated as the average of the 3 highest consecutive salaries in the 10 years preceding the decrement date. If this box is not checked, 3 #FASCUSTOM 10 will be calculated as the average of the 3 highest, not necessarily consecutive, salaries in the 10 years preceding the decrement date.

Check Reflect salaries after decrement in highest average if the final average salary (FAS) at decrement reflects salaries through decrement as well as the FAS calculations for all dates after decrement. The FAS at decrement will be equal to the largest of the FAS at decrement and the value of the FAS at all subsequent dates. This allows for situations such as when vacation pay is spread out over post-decrement pay periods and should be considered for the FAS at decrement. If the box is unchecked, only salaries through decrement are considered when calculating the FAS.

Note that for this choice to be effective, the referenced Salary Definition Set(s) must also recognize salary after decrement.

By default, whether or not the current salary at decrement is included in the FAS calculation is determined by a parameter in the Plan Attributes topic of Plan Definitions. If desired, check the Override Plan Definition > Plan Attributes FAS current salary assumption to ensure that the FAS calculation is always as desired. If this box is checked, you can specify whether the Averaging period includes or excludes current salary.

Counting

This dialog box specifies how salaries are counted for the averaging period and the considered period and allows you to reference a Service Definition Set to refine the determination.

When counting measurement period salaries, specify whether each measurement period salary counts as a full period or service defines the fractional period for each salary. If Each measurement period salary counts as a full period is selected, each salary in each included measurement period contributes one unit towards the averaging and the considered period, and no further parameters are available on this dialog. If Service defines the fractional period for each salary is selected, a Service Definition Set defines the fractional unit that the salary in each included measurement period contributes towards the averaging period and, possibly, the considered period.

When service defines the fractional period, there are three alternatives with respect to the Averaging Period:

If Only when service is less than averaging period is selected, service defines the fractional unit that each salary contributes to the averaging period only until such time as the service is at least equal to the averaging period. Once the service is equal to the averaging period each salary contributes one unit towards the averaging period.

If With salaries outside the averaging period ignored is selected, only the salaries within the averaging period are considered, with the average salary being equal to the total salary in the averaging period divided by the total weight in the averaging period, but not more than the averaging period. For example, if the 5 years of salary represent 55 months, the final average salary will be calculated as the total salary during the 5 years divided by 55/12.

If Where a prior salary is prorated to complete the average is selected, before calculating the average, the appropriate prior salary is prorated so that the salaries included in the average represent service equal to the averaging period.

When service defines the fractional period and a choice other than “only when service is less than the averaging period” is made for the averaging period, then you must indicate Is the considered period (e.g., 10 for 5 #FAS 10) service-related? If Yes, reflect as many measurement periods as necessary is selected, both the averaging and the considered period are relative to the total amount of service earned rather than a strict count of measurement periods. Thus, for a 5 #FAS 10 calculation, the number of measurement periods included in the 10 year considered period is the amount necessary (but no less than 10 calendar years worth) such that the total amount of service earned in the period (per the specified Service Definition Set) is at least 10 years.

If No, only use measurement periods up to the considered period is selected, the number of measurement periods considered for the final average salary (FAS) calculation is limited by the operator considered period. Thus, for a 5 #FAS 10 calculation with monthly salaries, only the most recent 120 non-excluded (in the {\b Salary Definition Set}) months of salaries are considered in the calculation, regardless of whether the service associated with that period is more or less than 10 years.

Calculate fractional period using Service Definition Set allows you to select a Service Definition Set from the library. The button accesses the library to create and modify Service Definitions.

Limits

This dialog controls how, if at all, salaries will be limited for (typically) regulatory maximums.

Salary limit indicates whether salaries for this operator will be limited to

Adjust annual salary limit indicates how the limits are adjusted for terminations within the year. If No is selected, the full annual limit will be used. If Yes, prorate annual limit for mid-year decrement is selected, the annual salary limits are prorated based on months started for decrements prior to the plan year end. If Yes, adjust based on (counting) service fraction is selected, each salary limit is prorated based on service earned in the measurement period using the Service Definition Set specified under the Counting topic.

Conditions

This dialog allows you to control when the final average salary calculation starts and when it stops. This is generally useful for plan amendments that may start or freeze the final average salary during a participant’s career.

Starting Point initiates the calculation of final average salary at a date potentially later than the first salary. The final average salary will be zero as of any date before this starting date. The starting point may be specified as any combination of Age/Service/Points/Date, where the criteria are evaluated similarly to any other eligibility criteria. Thus, for any given row of the age/service/points/date criteria, the FAS calculation will start when all of the criteria are met, and if there is more than one row, the alternative rows will be evaluated as “or” conditions. Thus, if one row says age 30 and 5 years of service and another row says 1/1/1995, then the FAS calculation will start at the earlier of 1/1/1995 and the date when the member is at least age 30 with at least 5 years of service.

Note that the averaging period for final average salary (Final average salary calculation parameter in the Plan Attributes topic of the Plan Definition, or averaging period override parameter under the Salaries & Basis topic of this operator) determines whether the 1995 salary is included in the final average salary as of 1/1/1995. Furthermore, ProAdmin excludes salaries prior to the starting point. Thus, if your averaging period for final average salary excludes the current salary field, then, in our example, the final average salary as of 1/1/1995 will be calculated as zero, because only salaries through 1994 are included in this average and these salaries are before the starting point (1/1/1995). If you wish to include earlier salaries (back to the hire date) in final average salary, then check the Include salaries before starting point box.

Freezing Point freezes the final average salary (in the future or in the past) as of the decrement date when the freeze conditions are first met. If the final average salary is frozen before a member’s date of hire, then that member’s final average salary will be zero at all decrement dates. When the freezing point is based on age, service and/or points (i.e., age plus service), these criteria are applied in the same manner as for benefit eligibility definitions (and the same rules for computing age and service apply). When the freezing point is based on date (perhaps in addition to the other criteria), enter the date at which you wish to freeze the final average salary. ProAdmin calculates the final average salary as of that date; final average salaries at any later date will be the same amount. For example, suppose the decrement date is 7/1/2001 and you enter 7/1/1997 as the freeze date. Then final average salaries as of all future years will be the same as the 7/1/1997 final average salary.

If starting or freezing point requirements refer to more than one service field, or if more complex rounding rules apply, you may then refer to a scalar date field from the Data Dictionary in the or earlier date parameters fields in the Starting and Freezing point sections, respectively. If values for these referenced dates change over time, consider storing that information in a numeric array field.  Then use a Data Default to select the appropriate value for the calculation to be stored in the referenced scalar data dictionary field.  Final average salary will start or freeze at the earliest satisfaction of the date field or of a row from the grid. 

A final average salary custom operator may have both a starting point and a (later) freezing point. If the final average salary is not being frozen, then the starting and freezing point spreadsheets may be left blank.

When the starting and freezing points are determined by service or points, you must specify the Service Definition Set for starting and freezing salaries. The button accesses the library to create and modify Service Definition Sets.

The Date adjustment for starting and freezing parameter allows you to select a Date Adjustment from the library. The button accesses the library to create and modify Date Adjustments.