DB 415 limit for muliple plans of same employer

[Guest eeben]

An employer had a DB plan 10 years ago. The plan terminated and lump sum distributions were made. The employer puts in a new plan for 2004 and the owner is at his 100% of pay 415 limit. Retirement age under the new plan is 65 and 5 years of participation, so his NRA is age 78. He was 63 when he received the first distribution from the old plan. How is the 100% of pay 415 limit payable at NRA 78 computed, since the 100% of pay 415 limit is not increased actuarially after age 65?

1. Compute the monthly benefit from the old lump sum payable at the age it was received (age 63) and reduce the monthly benefit by it at any future age?

2. Compute the monthly benefit payable at the old plan's retirement age 65, and reduce by that same monthly benefit even if payable at age 78?

3. Compute the benefit as indicated in #2, but actuarially increase it to the new RA of 78 to use as the offset? Using AE from the old plan?

4. Other calculations?

Thanks for any help I can get.

[Effen]

I would have picked #3. I think you should roll-up the prior distribution to the new anticipated retirement age and then offset.

David, is there any authority that says you don't need to roll it up?

eeben- if you search prior topics you will find a number of different answers to this question.

[Effen]

Would you answer be different if the persons received the lump sum equivalent of the dollar limit from the prior plan? It wasn't clear from eebens post what his benefit was from the original plan.

What if the individual’s high 3 comp was 140,000 in 1994 and he was paid a lump sum of the pv of $120,000. Assuming his high 3 hasn’t increased, I guess he could now start a new plan and fund the remaining 20K. I think I agree with that because the 415 limit has been increased.

But what if the 415 limit had not increased. Would you still argue that he could fund the extra 20K because the 415 limit at 70 would be greater than 140K? (AE of 120K commencing at 65 w/b > 140K by age 70). Wouldn’t you need to offset by the value of the benefits already received?

[ak2ary]

I agree that #1 is the only method that makes sense with respect to the 100% of pay limit...

Assume hi-3 pay of 90,000 and the participant had commenced a $70,000 life annuity 10 years ago. Clearly his maximum benefit now is $90,000 a $20,000 increase at commencement age, regardless of what commencement age may be.

[Guest eeben]

Thanks for the input so far. Just to clarify, in my question we are not at the 415$ limit in the past or currently. The annual life annuity benefit is currently at 100% of pay limit around $40,000. The prior distributions would represent a benefit of only about 10-15% of that amount no matter how you do the calculations.

But if the plan is drafted for a formula of 100% of pay and has language to not allow payment of a benefit over the 415 limit, (nothing specific about how to calculate the offset), what benefit is actually available.

Are most of you then in favor of option #1? Is there anyone who believes that option #3 should be used?

Thanks for all your help.