Uncovering the Secrets of 403(b) Limit Processing

1. Uncovering the Secrets of 403(b) Limit Processing Session 1000 Barry Melcher Betty McClellan Mike McNaughton University of Minnesota Softlink, Inc. PeopleSoft Version 7.6

2. Introductions • Barry Melcher • Benefits Counselor, Human Resources • University of Minnesota • Betty McClellan • Senior Consultant • Softlink, Inc. • Mike McNaughton • Business Analyst, Human Resources • University of Minnesota

3. Why We Modified Process • Problems projecting: • Includible earnings • Service credit • Due to: • Employees with multiple jobs • Employees who work part time • Employees with appointments that are less than 12 months

4. Agenda • Overview of University of Minnesota • Testing strategy • Discoveries • Our modifications • How we administer the process • Conclusions

5. Who We Are • Land Grant University with 4 campuses • 59,185 students • 30,823 employees • Common Paymaster for University of Minnesota (UMN) and an affiliated company (UMP) • Biweekly payroll with 10 day delay

6. Retirement Plans • Faculty Retirement Plan • 401(a) defined contribution plan with a 414(h) pickup • 5,269 participants • Minnesota State Retirement System • 401(a) defined benefit plan with a 414(h) pickup • 11,190 participants

7. Retirement Plans • 403(b) Plan - Optional Retirement Plan • 5,563 participants • 401(k) Plan • Affiliated company (UMP) • 20 participate in both 401(k) and 403(b) • Thrift Savings Plan • Federal employees paid through University payroll • 45 participate in both TSP and 403(b)

8. Legacy System • Business Rule • Project annual maximum and compare to current reduction amount • Projection based on term of appointment • Service credit earned each pay period based on term of appointment

9. Legacy System • Automatic maximum reduction calculation • Maximum less YTD contribution divided by pay periods remaining • Reduction amount loaded into payroll • Projected yearly maximum report • Run each pay period • Manual adjustments to reduction amounts

10. Legacy Data • 550 participants using automatic maximum • 260 participants using Any Year Exclusion Limit (Alternative B) • 35 participants using Overall Exclusion Limit (Alternative C)

11. Legacy Data • 190 participants using 402(g) Cap Expansion • Year of Separation Limit (Alternative A) - calculation for this limit not programmed

12. PeopleSoft Conversion • Conversion in June 2000 • Converted LTD balances as of December 31, 1999 into 403(b) annuity data record for calendar year 1999 • Converted all YTD balances into payroll balance records for calendar year 2000 • Did not convert to handle Year of Separation Limit (Alternative A)

13. Our Initial Strategy • Load setup tables • Run projection process • Analyze results of projection process • Run payroll • Figure out how payroll limited

14. What Really Happened • Loaded setup tables • Ran the projection process for the UMN company • Process took 12-14 hours to calculate for 30,000 employees • Started running projection process for single employees

15. What We Discovered • Trouble justifying PeopleSoft calculations • Discovered importance of setting deduction priorities • Reasons for deductions not taken were not specific enough to be meaningful • Discovered issues with multiple appointments

16. Multiple Jobs = Multiple Service Credit Problems • Employees with more than 40 standard hours due to multiple appointments received more than 1.0 Service Years YTD • Employees on short work break with less than 12 month appointments received less than 1.0 Service Years YTD

17. Multiple Jobs = Multiple Service Credit Problems • Employees with appointments in UMN and UMP received service credit based on both appointments (UMP company service credit should not apply to UMN) • Employees in unpaid pay groups received service credit for the appointment

18. Multiple Jobs = Multiple Includible Earnings Problems • Employees with appointments in UMN and UMP • Compensation based on both companies includible earnings (UMP includible earnings should not apply to UMN) • Employees in unpaid pay groups • Compensation on JOB record, but it was incorrectly added into their includible earnings

19. Other Issues • Includible earnings • Calculated on a calendar year basis from JOB record, not on when the earnings are paid based on payroll calendar • Adjustments panel • Anything entered into adjustments panels adjusted both the year entered and any following year • Part-time employees and employees on sabbaticals

20. Assistance From PeopleSoft • Confirmed our strategy for converting life-to-date balances • Got a fix on projection process and includible earnings • Gave guidance and options on when to run the projection process

21. The Lightbulb Goes On! • Previously, focused most of our time on the results of projection process • Modified the projection data panels to allow update for each field • Entered representative test cases directly into projection data panels • Ran payroll calculation to see the impact

22. The Lightbulb Goes On! • Projected Exclusion Allowance - payroll limit process uses this figure • Any Year Exclusion Limit (Alt B) - FYI on panel; payroll process recalculates and applies • Projected Year of Separation Limit (Alt A) - FYI on panel; payroll process recalculates and applies

23. The Lightbulb Goes On! • Overall Exclusion Limit (Alt C) - FYI on panel; payroll process recalculates and applies • Elect 402(g) Cap Expansion - payroll limit process uses this figure

24. Final Conclusions From Our Testing • Service Years and includible earnings calculations were not accurate for UMN setup • LTD and YTD totals for our retirement plans setup in custom plan types were not calculating appropriately in the projection process

25. Final Conclusions From Our Testing • PS has the right fields - projection process just doesn't populate them correctly for us • Limiting of deductions during payroll calculation works well • Decided not to change the vanilla projection process, instead built our own to populate delivered fields

26. Our Projection Process • Uses the vanilla run control record • Can run process for 1 employee or 1 company • When run for a company, will process anyone who has been paid in that company anytime during the calendar year

27. Our Projection Process • Can run for whatever year you want, so you can "build" history for rehired employees who don't have historical data on the system • Awards service credits for the pay period that was just confirmed

28. Our Custom 403(b) Panel

29. Our Projection Process • Uses the vanilla setup tables to define: • Deductions to be limited • Limit amounts • Imputed income to include • Deductions to exclude

30. Our Projection Process • Start with YTD earnings in our special accumulator • For each appointment, project regular earnings for pay periods remaining based on the term of appointment • Add these together

31. Custom Appointment Term Panel

32. Our Projection Process • For all deductions set up as imputed income to include: • Add imputed income from most recent pay check • Project for the rest of the year based on number of remaining pay periods, regardless of appointment term • Add this to our base earnings

33. Our Projection Process • Created Gross Salary Override to use in lieu of previous calculation for part time employees (less than 40 standard hours) • Gets the deduction balances and project for retirement plans, such as Faculty Retirement Plan and Minnesota State Retirement System • Using rules from setup tables, reduce the base as appropriate

34. Our Projection Process • Calculate the 403(b) record: • Start with the most recent year's LTD amounts • Add in YTD balances + projected includible amounts • Add in YTD imputed income + projected amounts • Subtract YTD deduction balances + projected amounts

35. Our Projection Process • Multiply the result by the MEA percent from limit table by years of service, then subtract the previous LTD deduction • Also calculate alternative elections, 415 limit, and 402(g) cap expansion • Update or insert new 403(b) records

36. Summary of Modifications • Custom record and panel to store YTD service credit awarded and Gross Salary Override • Custom appointment term record and panel • Custom SQR process to populate 403(b) annuity data fields

37. Summary of Modifications • Minor modifications to the vanilla panels that display the projection record • A few custom reports and queries

38. Final Stretch • Process and timing • The reports/queries • What we’ve gained • The future • Questions and answers

39. Process Flow • Projection process runs biweekly before paysheets are created • Audit reports are created • Pay calculation runs and deductions are calculated • Run custom queries • Manual updates/overrides as needed

40. Custom Reports • 403(b) Projection Process Audit Report • 4 lines per employee which displays all fields on the projection panels, plus components that go into the calculations • Report is huge, but can view online • Refer to it for testing and to audit calculations • Produced on an individual run also

41. Custom Reports • 403(b) Projection Process Overall Exclusion Limit Report • Displays data for people who have chosen the Overall Exclusion Limit election • The payroll COBOL process does not calculate the limit accurately with our retirement plan setup • We use this to manually override 403(b) deductions for this group

42. Custom Reports • Payroll Limited Report • Currently a query that is run after pay calc • Look for all “Not Taken” 403(b) deductions • Verify accuracy

43. Custom Reports • Payroll Limited Report (cont.) • Reviewed by staff • History evaluated • Make sure large deductions will be taken • Projection re-run, and paysheet recalculated if needed • Ran again after Pay Confirm to be ready for pay day

44. Custom Reports • Combined Limit Reports • Combines totals for multiple plans (e.g. 401(k), 403(b) and Federal Thrift Savings Plan) • Run before and after each confirm (common paymaster) • Manually override deductions as appropriate

45. What We Gained From PeopleSoft • Now allow percent elections • 9 month faculty have 19 ½ paychecks • 403(b) deductions every paycheck including summer earnings • Partial deductions • An integral part of the payroll process • Data is more available via query tools

46. What We Gained From PeopleSoft • Election history online • User friendly panels that have a lot of information on them • Automatically limits deductions

47. What We Gained From Our Customizations • More accurate limit calculations • Custom projection process runs in less than an hour • Able to leverage vanilla setup tables, employee records and payroll process without modifying them • Produce more informative reports

48. Future Opportunities • Automatic 402(g) deduction limit between 403(b), 401(k) and Thrift Savings Plan • Still need to do some monitoring and manual adjustments • Federal legislation to repeal maximum exclusion allowance

49. Questions • Barry Melcher • University of Minnesota • b-melc@tc.umn.edu • Betty McClellan • Softlink, Inc. • betty.mcclellan@softlinkinc.com • Mike McNaughton • University of Minnesota • m-mcna@tc.umn.edu