An Accrual Basis (aka Basis Formula) is part of an accrual definition Benefit Formula Component. Salary, final average salary and many other items are accessed by means of an accrual basis: for example, U.S. social security primary insurance amount (PIA) and covered compensation (CVCP), Canadian yearly maximum pensionable earnings (YMPE), German BBG and U.K. LEL.

The accrual basis expressions are often simple, but they can reflect significant complexity when necessary. They are constructed with (constant) numbers, ProVal operators, Accrual Basis Components and Custom Operators. A list of database fields, operators and other useful tools will appear whenever you press the F1 key, if your cursor is in the Accrual Basis Formula dialog box of the accrual definition Benefit Formula Component.

Sometimes the accrual basis is of sufficient complexity to involve components of its own. The Component Library allows you to create, unhide and edit accrual basis components. In particular, if a value used in the Accrual Basis Expression should vary by calendar year of decrement, you need to create an Accrual Basis Component in order to associate increase rates with the value.

If the available ProVal operators do not operate in the manner required by the plan provisions, then you can create your own variations through use of custom operators, available by clicking the Custom Operators button.

Treatment of the accrual basis varies by liability method. In entry age normal calculations of present value of benefits, the accrual basis is projected to the decrement date. Salary, Social Security wage base, bend-points, the qualified compensation cap and similar items are indexed at the rates specified by the valuation assumptions (in funding runs in the U.S. qualified mode, of course, the increase rates are often zero). Similarly, Accrual Basis Components with associated increase rates (for example, the benefit level of a benefit formula that is not pay-related) are indexed at the specified rates. The same is true of projected unit credit calculations – the accrual basis is considered to be related to the salary or benefit level in effect at the decrement date and its increases are anticipated and funded. The accrual basis is frozen, however, at its value on the valuation date when pure unit credit calculations are performed. This varying treatment of the Basis Formula, according to liability method, affects the recognition of changes at future decrement dates in the benefit level or percentage of pay (per unit of service defined by the Accrual Rates) – provided those changes are coded in the Accrual Basis rather than in the Accrual Rates. That is, the benefit level or percentage of pay in effect at decrement will be reflected for projected unit credit, whereas the benefit level or percentage of pay in effect at the valuation date will be used for unit credit. For more information about the treatment of the accrual basis under the unit credit and projected unit credit cost methods, particularly for attribution, see our Technical Reference article entitled PUC and UC attribution. For examples of the impact on PUC and UC attribution of coding changes in the future benefit level or percentage of pay, see our Frequently Asked Questions article entitled Flat Dollar plan with increasing benefit level.