QUESTION: My plan bases benefits on a final average salary, of the five highest consecutive years of the last ten, with each salary in the average limited to $25,000. How can I code this average?

ANSWER: In many cases, you can use a Custom Operator of the final average salary type (#FAS). For its salary limit, select a Custom Regulatory Table of the compensation limit type in which the salary limit is 25000 for all calendar years. This approach is suitable if the $25,000 limit applies to all plan members.

If, however, only some members are subject to the cap, and others are not (for example, subject only to the, higher, US Internal Revenue Code section 401(a)(17) compensation limit), and if different increase rates are to be applied to the custom regulatory table values and the standard regulatory table values, then this approach requires creating separate Valuations (or Core Projections in a forecast) for the two groups of members, so that different increase rates can be applied in Valuation Assumptions to the standard regulatory data and the custom regulatory table.

As an alternative to running separate Valuations (or Core Projections), and including them all in a Valuation Set (or forecast), you may use the following approach:

Instead of coding the basis formula of your accrual definition as 5 #FAS 10, code it as:

S1 := 1 #FAS 10 & ; highest salary

S2 := (2 #FAS 10) * 2 – S1 & ; 2nd highest salary

S3 := (3 #FAS 10) * 3 - S1 – S2 & ; 3rd highest salary

S4 := (4 #FAS 10) * 4 – S1 – S2 – S3 & ; 4th highest salary

S5 := (5 #FAS 10) * 5 – S1 – S2 – S3 – S4 & ; 5th highest salary

S1 := 25000 #MIN S1 &

S2 := 25000 #MIN S2 &

S3 := 25000 #MIN S3 &

S4 := 25000 #MIN S4 &

S5 := 25000 #MIN S5 &

(S1+S2+S3+S4+S5)/5

where S1 represents the highest salary in the average, S2 represents the second highest salary in the average, and so forth.

Variation for participants with few years of service

The formula above is exact only when the plan member has at least five years of service, as defined by the Date of Hire (or Hire Age) parameter of Input | Census Specifications | Active Data, at the date of determination of the final average salary. Before five years of service, the expression produces reasonable, but not exact, results if averaging salaries both above and below $25,000. The following variation handles this explicitly.

CAP := 25000 &

SVC := #SERVICE DOH &

AVGPD := #FLOOR (1 #MAX (5 #MIN SVC)) &

S1 := 1 #FAS 10 & ; highest salary

S2 := (2 #FAS 10) * 2 – S1 & ; 2nd highest salary

S3 := (3 #FAS 10) * 3 - S1 – S2 & ; 3rd highest salary

S4 := (4 #FAS 10) * 4 – S1 – S2 – S3 & ; 4th highest salary

S5 := (5 #FAS 10) * 5 – S1 – S2 – S3 – S4 & ; 5th highest salary

S1 := CAP #MIN S1 &

S2 := (CAP #MIN S2) * (AVGPD >= 2) &

S3 := (CAP #MIN S3) * (AVGPD >= 3) &

S4 := (CAP #MIN S4) * (AVGPD >= 4) &

S5 := (CAP #MIN S5) * (AVGPD >= 5) &

(S1+S2+S3+S4+S5)/AVGPD