QUESTION: My cash balance plan credits accruals and interest annually. The annual interest rate is 4% and at age 60 the interest changes to 7%. When a participant terminates employment in the middle of the year, the plan pays simple interest on the balance to termination/payment date. On the Structure tab, I’ve set the crediting frequency to annually, checked Or, if less crediting period through completed months and specified For crediting periods less than one year, adjust crediting rate to arithmetically. On the Active Rate Change tab, I’ve set an eligibility condition of age 60 to change the interest rate to 7%.  How does ProAdmin compute the interest in the termination/payment year if the participant attains age 60 during the year before terminating?

ANSWER: ProAdmin starts with the value at the beginning of the year (or end of previous year) and applies simple interest rates to this amount. It does not compute interest on any amounts computed within the year as compound (or geometric) interest does.

Example:
Balance at 12/31/2016:	$15,000.00
Termination date:	8/31/2017
Payment date:	9/1/2017
Date of birth:	6/3/1957
age 60 on:	6/3/2017

ProAdmin uses the balance at the end of the previous year to compute all interest values during the current year.

Period	Annual interest rate	Completed number of months	Simple interest for the period		Balance at 12/31/2016	Amount of interest
1/1/2017 - 6/2/2017	0.04	5	=(5/12) X 0.04	=0.016667	$15,000.00	$250.00
6/3/2017 - 8/31/2017	0.07	3 *	=(3/12) X 0.07	=0.0175	$15,000.00	$262.50
	* note: 3 months is determined as the difference between total completed months (8) and known completed months (5)				Sum =	$512.50
Total value at 8/31/2017:				$15,000.00 + $512.50		$15,512.50

The detailed output for the cash balance is:

Date	Member Age	Benefit Service	Accrual Rate	Accrual Basis	Period Accrual	Interest Rate	Balance Interest	Benefit Component
12/31/2015	58y 7m	16.000000	0.000000	0.00	0.00	0.040000	0.00	0.00
12/31/2016	59y 7m	17.000000	0.000000	0.00	0.00	0.040000	0.00	15,000.00
06/03/2017	60y 0m	17.000000	0.000000	0.00	0.00	0.016667	250.00	15,250.00
08/31/2017	60y 3m	18.000000	0.000000	0.00	0.00	0.017213	262.50	15,512.50
09/01/2017	60y 3m	18.000000	0.000000	0.00	0.00	0.000000	0.00	15,512.50
12/31/2017	60y 7m	18.000000	0.000000	0.00	0.00	0.022562	350.00	15,862.50
12/31/2018	61y 7m	18.000000	0.000000	0.00	0.00	0.070000	1,110.38	16,972.58

ProAdmin shows the progression of the Interest Rate as cumulative factors - not simple interest factors. The total interest for the period = $512.50, so the interest rate for the period = 0.034167, computed either as $512.5/$15,000 or sum of 0.01667 and 0.0175. Since 0.016667 is used for the period to 6/2/2017, we have two known cumulative factors and one unknown factor:

Period	Simple interest	Known cumulative factors	Compute remaining cumulative factor	Cumulative factor	Check
1/1/2017 - 6/2/2017	0.006694	1.016667		1.006694
6/3/2017 - 8/31/2017	0.0175	(not known yet)	1.034167/1.0106667 =	1.017213
Total: 1/1/2017 - 8/31/2017	0.034167	1.034167		Product =	1.034167

ProAdmin determines the Interest rate of 0.017213 for the period 6/3/2017 to 8/31/2017.