Balance Forward Recordkeeping is a method of accounting in which each participant's account shares proportionately in the allocation of earnings and expenses. In a balance forward system, account balances are tracked in dollars and updated on a periodic basis. Historically, balance forward accounting has been the traditional method for allocating gains and losses in most defined contribution plans where accounts are valued annually and employer contributions are deposited annually. As 401(k) plans have increased in popularity, balance forward recordkeeping has also adapted by increasing the frequency of reporting periods.
Balance forward accounts must be valued at least annually, although semi-annual, quarterly, or monthly valuations are common. The terms of the plan document will dictate the frequency of valuation. In some plan documents, accounts may be valued more frequently if a significant event occurs that would result in an inequitable allocation of earnings and expenses.
Balance Forward Accounting is the traditional method of participant accounting. It might also be called the accrual method of participant accounting. The balance forward method looks back over an accounting period (usually three, six or 12 months) and tallies up total contributions, investment income, withdrawals, transfers and forfeitures. These total amounts must then be attributed to individual participants by type of contribution and investment category. Individual amounts are recombined to develop individual participant account balances. Participant balances must add up to total plan assets including any contributions due to the plan participants.
The Balance Forward method is useful for plans which are based solely on employer contributions or for plans that do not permit participant investment selection. It is also appropriate for many new plans that may have a small number of participants and/or a small total account balance. This method may also be used by employers who wish to keep their plan simple, inexpensive and flexible.
As a Katz, Sapper & Miller client, your plan's Balance Forward Recordkeeping will include:
- Periodic account balance updates
- Plan Sponsor Web Module - Internet access for the Plan Sponsor and for the plan's Investment Advisor for plan inquiries and reporting
- Full plan compliance services including preparation of all testing and filing requirements
- Complete flexibility and choice among thousands of mutual funds from hundreds of mutual fund families
- An assigned Katz, Sapper & Miller representative for direct contact during normal business hours for questions and help
- Timely and easy to read benefit statements
- Periodic distributions to terminated employees and loan applicants
- Income tax withholding and reporting for all distributions