Schwab RT Accruals User Guide. Schwab Retirement Technologies, Inc.

Transcription

1 Schwab RT Accruals User Guide Schwab Retirement Technologies, Inc.

2 Schwab RT Accruals July, 2014 The material contained herein is proprietary to Schwab and for informational purposes only. The information is not intended to provide tax, legal or investment advice. Schwab does not guarantee the suitability or potential value of any particular information source. Certain information presented herein may be subject to change. The information or material contained in this document may not be copied, assigned, transferred, disclosed or utilized without the express written approval of Schwab. The Charles Schwab Corporation provides services to retirement plans and participants through its subsidiaries: Charles Schwab & Co., Inc. (Member SIPC), Charles Schwab Bank, Schwab Retirement Plan Services, Inc., Schwab Retirement Plan Services Company and Schwab Retirement Technologies, Inc. (Schwab RT). Schwab RT is engaged in developing and licensing proprietary retirement plan recordkeeping systems to independent Third Party Administrators. For further information, contact Schwab Retirement Technologies, Inc. at 4529 Sharon Road, Charlotte, NC 28211, USA. Web site: schwabrt.com Schwab Retirement Technologies, Inc. All rights reserved.

3 Table of Contents Income Accruals... 4 Accruing Income... 4 Allocating Accrued Income... 4 How Schwab RT Recordkeeping Processes Accruals... 5 Overview of the Accrual Cycle... 6 Updating Accrual Dollars... 8 Verifying Accruals Before Processing... 8 Unaccruing Income... 9 When to Use Accrued Income Release... 9 Month-End Accrual Cycle... 9 User-Defined Accrual Cycle... 9 Releasing Accrued Income Tips for Troubleshooting Accruals Accruals, Dividends, and Capital Gains in Generic Import Additional Information Page 3 of 14

4 Income Accruals Accruing income is a method of allotting estimated earnings to the shareholders of an investment. The accrual determination is generally made on a daily basis by the investment manager. accruals are expressed as rates. Once you receive the rate from the investment vendor, you can update the plan(s) that maintain(s) that specific accrual investment. An accrual can be converted to a dollar amount by multiplying the rate by the number of units held on the day to which the rate applies: Daily Accrual Dollars = Units In Fund At End of Yesterday s Accrual Rate Accruing Income The purpose of accruing investment income is to maintain an equitable earnings allocation method and to have the ability to allocate earnings to participants who liquidate from an investment for reasons of transfer or distribution. Additionally, a historical record of the accrual rates can be maintained for tracking and audit purposes. The Income Accruals application increases participants' interest in an investment each day proportionally to the same amount accrued by the vendor for the investment. Important: Income should be accrued before releasing any trades from the previous day so that the allocation basis will not be distorted. This is especially important when instructing the system to calculate the accrual dollars using the current accrual rate because the system uses the current units. If trades are released before the accrual is processed, the allocation basis does not truly represent yesterday s units. Note: If you are using Generic Import Price to accrue income, you should not use Income Accruals. Allocating Accrued Income At the end of the accrual period and upon confirmation of the income amount paid to the trust by the investment manager, the accrued income is allocated or released to the participants. This process creates the transactions that reflect the participant's receipt of earnings. When allocating accrued income, exceptions will occur for participants who have liquidated from the accruing investment during the accrual period. The system first processes the exceptions and then allocates the income. Page 4 of 14

5 How Schwab RT Recordkeeping Processes Accruals Accruals can take place at the investment level or plan level for the investment. By maintaining the rates of accrual at the plan investment level, a participant's accrual dollars for an accrual period can be determined by applying the plan investment's current accrual rates to the participant's current unit balance. With Income Accruals, the dollars are allocated to the holders of the investments using the current units held as the allocation basis. The money accrued each day is held in the current (daily) accrual field and added to the month-to-date accrual field. The current accrual amount is held only temporarily and is replaced when tomorrow s accrual is complete. For investments that accrue daily and are on a monthly release cycle, the system moves the month-to-date accrual dollar amount to a pending field on the first day of a new month. This amount goes into a batch in the Pending data when you run Accrued Income Release. The accrual batches are released into transaction history when you run Batch Release. Income is accrued for accrual -based investments on a daily basis and released according to one of the following Accrual Release cycles as specified in Investment Maintenance: 100: Monthly (accruals are released at the end of the month) 149: User-Defined Cycle (User controls when accrual income is pended and released) Note: Be sure to run Accrued Income Release before you process the first day of the next month. If you have accruals in the pending field, they will be overwritten if another month's accruals are moved into the pending field. Page 5 of 14

6 Overview of the Accrual Cycle Process Income Accruals When you process income accruals, the system does the following: 1. Spreads the accruals among the participants holding that investment. The amount goes into the current accrual field for the participant. 2. Adds the current accrual to the month-to-date accrual. 3. Zeroes the current accrual field. When it's the first day of a new month and the release cycle is monthly, the system also: 4. Moves the month-to-date accrual amount into the pending field. If you have not released the previous month's accruals, accruals in the pending field are overwritten. 5. Zeroes the month-to-date accrual field. Note: If the release cycle for the investment is user-defined, the system does not pend the accruals or zero the month-to-date amount until you select the Pend Income option and run Accrued Income Release. Month-End Processing The Accrual Release cycle (defined in Investment Maintenance) determines how Schwab RT Recordkeeping handles the monthly accruals. If the accrual Release Cycle field is set to 100: Monthly 149: User Defined Then... On the first day of the new month, the system adds the final day's accrual to the month-to-date accrual for the month's final income. The system puts the month's total in a pending income field. Then it zeroes the current and month-to-date accrual fields. Use Accrued Income Release to instruct the system to move the accrual amount held in the month-to-date field to the pending field. If you use Accrued Income Release to enter the month-to-date amount for the investment, the system allocates the amount to the participants. It uses the participant pending accruals for the basis of each participant's calculation. The total accrual amount is the sum of the last daily dollar amount and the month-to-date accrual on the system. Before entering the last daily dollar amount, verify that the total accrual amount equals the amount that the investment manager is going to credit to the investment. If these amounts are not the same, make the adjustment when you enter the final accrual dollars, or use the Accrual Adjustment application. After month-to-date totals have been pended on the first day of a new month and before the beginning of the next month, run Accrued Income Release. The system does the following: Page 6 of 14

7 1. Moves the accruals from the pending fields to batches in the daily Pending file. Note: Specify whether to batch accruals by investment for each plan or to batch accruals by investment across all plans in the current Plan Group. 2. Zeroes the amounts in the pending fields. Accrued Income Release for Investments with a User-Defined Release cycle: The system does not pend accruals with a user-defined release cycle until you run Accrued Income Release. When you run Accrued Income Release and select the Pend Income option, the system: 1. Adds the month-to-date accruals to the pending fields. 2. Zeroes the month-to-date and current fields. When you run Accrued Income Release and select the Pend and Release Income option, the system: 1. Adds the month-to-date accruals to the pending fields. 2. Zeroes the month-to-date and current fields. 3. Moves the amounts in the pending fields to batches in the Pending data. 4. Zeroes the pending fields. When you run Accrued Income Release and select the Release Income option, the system: Moves the amounts in the pending fields to batches in the Pending data. Zeroes the pending fields. Release Accrual Batches with Batch Release When you run Batch Release, the accrual batches in the Pending file are released into transaction history. Page 7 of 14

8 Updating Accrual Dollars To... Accrue for all plans Do this... Input current accrual dollars on the Price Manually window in Pricing. You cannot update the accrual dollars through Income Accruals.. Accrue for a specific plan Use Income Accruals to input accrual dollars or rate. When you adjust accruals Schwab RT Recordkeeping does the following: Adjusts the accrual amounts for the current plan(s) and investment, according to the basis specified. Generates a summary that shows the total amount allocated in the current runtime and which accrual field was adjusted. If you selected the Print Detail checkbox, generates the Income Map (which shows the amount allocated and the basis for each participant in each source). Verifying Accruals Before Processing You can run the current accrual in Edit mode before you actually allocate the accrual to participants. Use the Edit Mode/Update Mode toggle on the Options menu to select the mode for processing the accruals. When you run in Update mode, the system updates the participant's current and month-to-date accrual fields. When you run in Edit mode, the system does not update participants' accrual amounts. You can produce a detailed list of the accruals to verify the amounts before you actually process them in Update mode. Page 8 of 14

9 Unaccruing Income The Unaccrue function unaccrues income for one day. Use this function to correct inaccurate accruals for one day at a time. The system subtracts the incorrect amount from the current accrual and month-to-date fields. You can then use Reaccrue to enter the correct current accrual dollar amount and to reaccrue. The system does not unaccrue an amount already moved to the pending field. To unaccrue income do the following: 1. From the Income Accruals window, select Unaccrue. 2. Enter the Plan ID. 3. Enter the last correct day of accrual in the As Of Date field. 4. Select the investment(s) to unaccrue. 5. Enter the total incorrect current accrual dollar amount in the Accrual Dollars field. 6. Click the Print Detail checkbox to print accrued income detail. 7. From the Options menu, click Process. When to Use Accrued Income Release For accrual based investments with a month-end release cycle, use the Accrued Income Release application at month-end or soon after. For accrual -based assets with a user-defined cycle (code 149) use the application on the designated release date. Month-End Accrual Cycle For month-end accrual investments, release accrued income at least once a month. The month-end accruals replace the pending accruals field when a month-end is crossed. Because the pending field is overwritten at month-end you must release last month s accruals prior to crossing the next month-end. If you do not release the accruals before month-end, the accrual amount held in the pending field is overwritten in the month-end transition. User-Defined Accrual Cycle The user-defined accruals add to rather than replace the pending accruals amount at month-end when the User Defined Type is set to Pend Income. Each time you cross a month-end and Accrued Income Release is run, the pending amount for investments with a user-defined accrual cycle increases. It keeps increasing until you run Accrued Income Release with Release Income specified for the User Defined Type. Example: The release cycle for Investment ABC is quarterly. The pending amount increases each month. Once a month run Accrued Income Release for the investment and select the Pend Income option for the User Defined Type. At the end of the third month, when you run Accrued Income Release, set the User Defined Type to Pend and Release Income. If you already pended that month's income, select the Release Pended Income option. The system moves the amount in the pending field to the Pending file. Page 9 of 14

10 Releasing Accrued Income When you release accrued income, batches are created that allocate the accruals to participant accounts. If a participant has a zero balance, the sale generated by the system produces uninvested cash in the account. You can run a Cash Balance Report to see the amount of uninvested cash produced in the account by the accrual release. Uninvested cash can be moved using the Cash Sweep application or it can be disbursed to the participant through Posting. When you process Accrued Income Release for investments with monthly release cycles, Schwab RT Recordkeeping moves the accrual amounts in the pending fields to batches in the Pending file. Before releasing accrued income, you might want to verify the total accrual amount on Schwab RT Recordkeeping and compare it to the total the investment manager intends to credit the account. You can obtain the system total by printing the GIC Balance Report. If necessary, you can adjust the system total one of two ways: To adjust the total prior to creating the batch, use the Maintain GIC Accrued Income application. To adjust the total after releasing the batch to the contracts, use the Adjust GIC Balances application. Note: This method creates additional transactions that must be released into the system. To release accrued income: 1. From the Release Income window, select the plan or all plans and the investment for which you want to release the income. 2. Specify the As Of Date and back date option if appropriate. 3. Enter the Month End Accrual Amount, if appropriate. 4. Specify whether you want to segregate sales, display the pending amount, batch by plan, and print the Accrued Income Release detail. 5. Select Submit from the Options menu. 6. Repeat steps 1 5 until you have submitted all the accruals you want to release. 7. Select Process from the Options menu. 8. When the system asks if you want to process all information, click Yes. 9. The system releases pending accrual income for all selected investments that have a monthly release cycle. Page 10 of 14

11 Dividend Allocation Basis Code Descriptions The following table shows a description of the default allocation basis codes: Code Description 571 Xdate/Paydate Processing The system uses the Xdates and Paydates as entered. If you select this code, enter the four Xdate and four Paydate periods under Xdate and Paydate in this window. 572 Units as of Month End The system uses the units from the last completed month end as the basis. 573 Current Shares Held The system uses the current shares held in the investment as the basis. 574 Specific Date The system uses the shares held as of the date entered in the As Of Date field in the IncomeAccruals application as the basis. 575 Pending Income The system uses the pending amount or frozen accrual amount held by each participant as the basis. Accrual amounts are stored in the pending field after crossing a month-end but before releasing the accrual. Page 11 of 14

12 Tips for Troubleshooting Accruals Before month-end, compare the total accrual amount the investment manager intends to credit to your total accrual amount. The total accrual equals the final dollar accrual amount plus the month-to-date accrual amount. The following tips can help you correct discrepancies: To gather additional information, review the following reports generated by the system: The Investment Pricing Report provides the current accrual rate for each investment for every day of the month. The End of Day Investment Summary Report provides the number of units held in the investment as of the end of each day. The Accrual Summary Report (produced when you accrue income each day) provides the amount of accrued income allocated to the investment each day. To correct discrepancies, use the following Subtract the difference between the system's total and the investment manager's total, and use the amount for the last day's accrual. Enter the total amount credited by the investment vendor when you release the accruals to batches. Use the Unaccrue and Reaccrue functions in Income Accruals to clear the incorrect amount and accrue the correct amount for the investment. Run the Accrual Adjustment application to modify the current, month-to-date, or pending amounts for investments for an individual plan or for all plans. Run the Maintain Accrued Income application to modify current, month-to-date, or pending amounts for individual participants. Page 12 of 14

13 Accruals, Dividends, and Capital Gains in Generic Import Importing Month-End Accruals, Dividends and Capital Gains Importing dividends, accruals and/or capital gains is controlled by the fields and checkboxes under Dividend Accrual or Capital Gains as well as the fields on the Status Codes and Tax Codes windows. These parameters are used in creating the accruals dividends and capital gain transactions. Note: Schwab RT Recordkeeping can import dividends, accruals and capital gains across directories. Month-end accruals can be imported only if the system has been accruing income for the investment on a daily basis. The reason for this restriction is that the Generic Import application uses each participant s pending accrual amount in the Balance data as the basis in the allocation. If the system has not been processing accruals on a daily basis, there is no basis for the allocation. Before processing the month-end accrual amount, you must have already run the Generic Price Import application to process the final daily accrual for the month. The Generic Import application sets each participant s pending accrual amount to the new allocated amount and generates prereconciled batches in Pending File C and settled trade orders in the Order data. Once you release the batches, the dividends/accruals/capital gains are added to Transaction History. Note: Schwab RT Recordkeeping recognizes a trade as a capital gain by its activity code. Activity codes with a C indicates that the trade is a capital gain. If An Incorrect Month-End Accrual Amount Is Imported If an incorrect month-end accrual amount is imported that is less than the actual amount, the actual monthend accrual amount can be imported again and the system creates a batch for the difference. For example, if the actual month-end accrual amount should be $100 but the import file shows only $80 as the total accrual, the user can re-import the actual accrual amount of $100 and the system generates an additional batch for the missing $20. If the month-end accrual amount that was imported exceeds the actual amount, you must purge the accrual batch. Page 13 of 14

14 Accrual Forfeiture Final Sales Batches When a participant terminates from the plan and has the final payout indicator 828: Advance Accrued Income and Cover Overdraft, the Lump Sum Distribution application or Automated Data Translation application creates a cash disbursement for the vested accrued income amount. When importing accruals through the Generic Import application, the system creates two sale batches (one for the vested portion and one for the non-vested portion) under the following circumstances: when the participant has negative uninvested cash when the participant has a final payout indicator set to 828 the Segregate Sales checkbox is selected, and a tax code for forfeiture sales is input in the Tax Codes window. This feature assumes that the participant had no uninvested cash at the time of payout. If you ignored the uninvested cash warning given at the time when the lump sum was posted and did not clear this cash up before the accrual was released, the system inaccurately calculates vested and non-vested portions. Additional Information For more details on Accruals processing, refer to the following sections of the SchARP Trading User Guide, available from the Resource Center at schwabrt.com Charles Schwab Trust Company (CSTC) Schwab Custody (Broker/Dealer) Generic Trading TDI Settings in SQL Recordkeeping Page 14 of 14