alexa

415 limit in DB plan and J&S options

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alexa    0

We have a retiree above 415 limit by $200 on a Single Life Annuity(SLA) basis

He wants 50% J&S option and that is under the 415 limit but do we need to apply the J&S factor to capped SLA

The 50% J&S benefit comes with a pop-up feature but this is the actuarail equivalent of SLA so I assume no further adjustment to 415 limit

Our plan right now doesn't increase the benefit to retirees when the 415 limit increases. Can we amend our plan now

does anyone have info on 415(m) excess plans? are they subject to FICA?

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My 2 cents    248

My understanding of 415 vis a vis governmental defined benefit plans:

1. It is not necessary to cap accruals or single life annuity benefits before converting to other payment forms. You would find the J&S benefit equivalent to the uncapped normal form (life annuity) benefit and then cap that (assuming that the J&S benefit would qualify for QJSA treatment - if not, then the cap to be applied would be adjusted for the non-QJSA joint form, but still the cap would be applied after conversion and not before). The IRS rules appear to exempt the governmental plans from the "cap first" treatment applied to ERISA plans. The difference is that the governmental plans are not subject to Section 411, so permitting recognition of accruals above 415 limits that don't get paid would not be an impermissible forfeiture. Governmental plans are permitted to eliminate benefits already accrued (at least as far as the Internal Revenue Code is concerned).

2. It may be the case that extra adjustments are required for the pop-up feature, since that feature might not be covered as part of a QJSA benefit. A 50% J&S with a pop-up is (obviously) a bit more valuable than a straight 50% J&S, so an adjustment may be necessary. And that assumes that the adjustment only needs to be made with respect to the marginal extra value and not the entire difference between a QJSA and a straight life annuity.

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david rigby    258

... and the plan has to include the proper language. For example, if you want to pay the 50% J&S annuity, make sure the plan provisions include the proper (amended) definition(s) of actuarial equivalent.

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alexa    0

what do you mean by proper amended definition of actuarial equiv.?

we are using 8% '83GAM for actuarial equivalence to convert SLA to J&S with pop-up options

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My 2 cents    248

Not sure what amendment is needed here. It is my understanding that PPA's changes to the rules concerning actuarial equivalence don't apply to governmental plans. The plan must contain a specific actuarial equivalence basis, but that has been the case for years.

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david rigby    258

Perhaps I misunderstand the situation and/or desired result.

1. Suppose the 415 limit = 200K, and the accrued benefit = 201K. Result, can't pay more than 200K as life annuity.

2. Suppose the 50%J&S benefit is $201K reduced by 10% = ~ $181K. Result: the plan can pay the $190K J&S benefit.

3. Amend the plan (maybe?) to change the 50%J&S factor to 95%. Result: $201 x .95 = ~ $191K, still less than the 415 limit, so it can be paid. Is this what the sponsor is trying to accomplish? If so, the plan must be amended first.

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Mike Preston    244

" Result: the plan can pay the $190K J&S benefit.".... typo? Did you mean ~$181k?

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alexa    0

I thought governmental plans are not subject to QJSA rules?

I know we do not require spousal consent if a retiree who is married elects a SLA

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My 2 cents    248

I thought governmental plans are not subject to QJSA rules?

I know we do not require spousal consent if a retiree who is married elects a SLA

It is my understanding that if the payment form elected would meet the definition of a QJSA (between 50% and 100% continuing to contingent annuitant after the prior death of the participant, and the contingent annuitant was the legal spouse as of the date payments commenced), then no adjustment to the IRC 415 limit on account of the payment form being other than a straight life annuity is required, whether the plan is governmental or not, subject to the spousal consent requirements or not.

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david rigby    258

I thought governmental plans are not subject to QJSA rules?

Not subject to QJSA by ERISA, but might be subject to those (or similar) rules by plan provision(s).

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