U.S. RPA optional and/or transition rule calculations
Some calculations necessary for the Optional and/or Transition Rule section of the Development of Additional Funding Charge Exhibit, which applies to pre-2002 plan years, are not fully documented in the exhibit. Details of the calculation of the Transition Rule Target Percentage, end of year RPA Current Liability and end of year Actuarial Assets, all used for the Optional and/or Transition Rule, are described below.
Transition Rule Target Percentage
The RPA ’94 Transition Rule Target Percentage is calculated in accordance with Internal Revenue Code §412(l)(11)(B). The following methodology is applied:
Under the transition rule, the initial funded current liability percentage is for the 1995 plan year (per §412(l)(11)(C)(ii)).
The applicable plan year is determined by the relationship of the fraction of the year from the valuation date to the end of the plan year, as entered under the Contribution Policy topic of the Asset & Funding Policy, to the valuation date entered under the Initial Asset Values topic. (A warning message is provided if the Asset & Funding Policy valuation date is not the same as the valuation date of each of the referenced Valuations/Core Projections.)
Rounding to 4 decimals is performed.
ProVal first calculates the target percentage for the prior plan year in order to determine whether clause (i) or (ii) under §412(l)(11)(B) applies. Thus, for example, if the plan year is determined to be the calendar year 1997 and the initial funded current liability percentage is 69.3%, the transition rule target percentage for the 1996 plan year is first calculated as:
69.3 + 6 = 75.3%.
Then, because the prior year target percentage is greater than 75%, the transition rule target percentage for the 1997 plan year is calculated as:
75.3 + 2 + [0.1 * (85 – 75.3)] = 78.27%.
End of Year RPA ’94 Current Liability
The end of year RPA ’94 current liability is calculated in the Development of Full Funding Limits exhibits. Briefly, the end of year RPA current liability is the RPA current liability plus normal cost minus expected benefit payments, with interest to the end of the year at the RPA rate.
As discussed more fully under the Interest on Expected Benefit Payments and Mid-Plan Year Valuations articles, interest on expected benefit payments is determined on a compound basis for one half year, and all calculations are adjusted if there is less than 1 year to the end of the plan year (as indicated by the Asset & Funding Policy timing parameter). The valuation normal cost and the expected benefit payments are prorated if the valuation date is after the first day of the plan year; interest adjustments reflect only the period from the valuation date to the end of the plan year.
End of Year Actuarial Assets
The end of year actuarial asset value is calculated as the actuarial assets (not the lesser of market and actuarial) reduced for the funding standard account credit balance, adjusted for expected benefit payments during the year and increased for investment return at the valuation interest rate. Note that there is no explicit adjustment for expenses.
End of Year Net Funding Standard Account Charge
The end of year net funding standard account charge is determined from the Summary of Minimum Contribution Limits exhibit as the sum of the normal cost and net amortization amounts with interest at the valuation rate to the end of the plan year.