Compensation while a participant

[No Name]

Its always (to me) been an open question whether high-three-year-comp was "as an employee" vs "as a participant". The Code and Regs are at logger-heads. Now, the proposed new regs make it clear that its comp while a participant.

I've got a plan where benefits are based on high 3 year employee comp vs participant comp (pre-effective date). Think there'll be a grandfather?

[David MacLennan]

I think there will of necessity be a grandfather, since the IRS has issued regs, LRM's, and favorable opinion letters allowing pre-participation comp for the 415 limit.

[No Name]

Thanks for the reply. I have knowledge of many other plans set up based on pre-participation comp. (Kind of like catch-up contributions, except DB contributions taking comp down to low figures.)

[could be me maybe not]

There is a grandfather provision in the proposed reg for issues for which there have been prior contrary "guidance". The IRS audit manual, for one thing, states that since the regs and code differ, either pre or post participation comp is acceptable. Presumably that would be considered "guidance".

[ak2ary]

The proposed regs have a 1/1/07 effective date and will grandfather benefits accrued prior to the effective date of the reg change. However, to prevent folks from accelerating accruals by plan amendment, the proposed regs carry a 5/25/05 effective date for benefits accruing under plans adopted or amended after 5/25/05

[Effen]

Love the user name!

[could be me maybe not]

Like No Name's picture!

[No Name]

OK. Acrrued benefits are one thing, but what about benefit calculations going forward? Average comp, pre-participation = $60k. Average since plan started = $20K (self-employed, after deduction for DB and SE rip-off).

Seems to me High 3 is a permanant #, regardless of new regs. Been around too long to know what "seems to me" is often wrong.

cbmmn, thanks. Drew that maybe 35 years ago. Full size is available for an email address.