The Accrual Definition is a special type of Benefit Formula Component designed to accommodate a wide range of plan designs. It captures the accrual, or growth, in most pay-based, service-based, points-based or, less commonly, age-based benefit formulas. Using an accrual definition will, in most instances, project and attribute the benefits automatically. Note that accrual definitions capture growth only until decrement and therefore cannot be used for inactive member benefits in OPEB mode.

In the pension modes, there are five categories, or formats, of accrual definition: final average, career average, cash balance, pension equity and basis only. In OPEB mode, there are two categories: final average and basis only. Depending upon the Accrual format, completing an accrual definition will involve establishing the accrual basis and can also involve establishing accrual rates, an accrued benefit and, possibly, projection and freeze ages, crediting frequency and indexation timing. In the German pension mode, completing an accrual definition may also involve setting vesting parameter values different from ProVal’s default. See the list of topics that need to be completed, and other available topics, at the end of this article.

The names assigned to each category of accrual definition give one possible application for that category but it is certainly not the only application. Nor is there necessarily just one way of coding a plan provision. For example, dollar-multiplier plans can be modeled with final average or with career average accrual definitions. You can simulate a defined contribution plan with a cash balance accrual definition. Pension equity plans can make use of career average and basis only definitions. Only by examining the actual calculations inherent in each type of plan can you determine which category is appropriate in a given instance.

Final average accrual definitions first calculate a cumulative sum of rates over an individual’s service until decrement. This sum is then multiplied by a basis, also evaluated at decrement. Generally, for most final average pay plan designs, this means that the percentages of final average salary are entered in the rates and that the final average salary itself is entered in the basis.

Career average accrual definitions calculate a running total of benefit accruals until decrement, each term of which is a given year’s rate multiplied by its basis. For many career average plans, this means that the percentages are entered in the rates and the salary itself is entered in the basis. The accrued benefit topic identifies the benefit earned, or accumulated, as of the Valuation Date entered for the Valuation (or Core Projection). Career average accrual definitions also are frequently used to define the accumulated amount of employee contributions under a contributory plan (i.e., a plan under which employee contributions will be made in the current and future years).

In the universal pension mode, you may increase, or “index”, the accumulation of a career average component until decrement, by checking the with indexation box. When this box is checked, the career average component will behave like a cash balance component, in the sense that it will grow because of something other than service – in this case, it will grow according to an index (rather than with interest credit). The indexation is credited at the beginning of the year, unless you specify indexation at the end of the year (under the Projection and Freeze Ages, Indexation Timing topic).

Cash balance accrual definitions, like the career average type, calculate a cumulative total of each year’s rate multiplied by its basis. Cash balance plans also credit interest on the accumulation, or account, until decrement. The Accrued Benefit topic describes the account balance, with interest, as of the Valuation Date entered for the Valuation (or Core Projection). Refund-of-contribution benefits often utilize cash balance accrual definitions. You may enter a constant Interest crediting rate directly under the accrual definition of this Benefit Formula Component, or you may indicate that it will be specified in Valuation and Projection Assumptions, i.e., entered under the Valuation Assumptions command (and the Projection Assumptions command, for a Core Projection). Entering interest crediting rates under the valuation and experience assumptions, instead of in the accrual definition of the component itself, allows the option of calendar-year dependent or inflation-sensitive interest crediting rates.

Pension Equity accrual definitions first calculate a cumulative sum of rates over an individual’s service until decrement. This sum is then multiplied by a basis, also evaluated at decrement. If an implicit pension equity plan is being valued, it is then divided by an annuity factor deferred to normal retirement age. If an explicit pension equity plan is being valued, check Interest credits apply from decrement to normal retirement age to then multiply by interest credits from decrement to normal retirement age and then divide by an immediate annuity factor at normal retirement age. The Normal retirement age parameter can be defined either as a constant or as a numeric database field. Non-integer ages are rounded to the nearest integer age. If Interest credits apply from decrement to normal retirement age, enter the interest crediting rates under the Increase & Crediting Rates > Benefit Formula Components topic of Valuation Assumptions  and/or Projection Assumptions . The underlying mortality rates and interest rate(s) for the annuity factor are entered under the Conversion Factors topic of Valuation Assumptions  and/or Projection Assumptions .

Basis only accrual definitions do not include the concept of benefit accrual over service. They merely provide access to the accrual basis screen, where special operators are available to refer to pay, U.S. social security items, such as covered compensation and primary insurance amount, etc..

Because an accrual definition is designed to project and attribute benefits automatically, the Basis only accrual definition is useful also if you do not want automatic projection and attribution. Such situations probably occur most frequently in OPEB mode. Examples of this application are a table of face amounts of insurance that decline with duration since retirement or a table of participant contributions that increase with the Consumer Price Index until retirement and then remain level. A Benefit Component Table that is an Accrual Basis Component (not automatically projected) rather than a Benefit Formula Component (generally projected) can be accessed by means of a Basis only accrual definition. In these examples, the tables should be Accrual Basis Components because the retiree’s insurance amount or contribution, respectively, is determined according to, or at, the retirement date, respectively, with no accumulation due to years elapsed after retirement. See Accrual Basis Components for more information.

Select a topic to edit contains entries for up to five categories of information found in an Accrual Definition:

Basis Formula

Accrual Rates (includes access to custom attribution rates)

Accrued Benefit or, "Accrued Credits” for a pension equity component

Projection & Freeze Ages or, for a component with a cash balance Accrual format, “Projection & Freeze Ages, Crediting Frequency” or, for a career average component with indexation, “Projection & Freeze Ages, Indexation Timing”

Vesting (German pension mode only)