Attained age permitted for Sec. 415 limited lump sum?

[Guest Dave Peckham]

To calculate a participant's Section 415 lump sum limit, is it permissible to use attained age as of the date of distribution, rather than nearest age, for purposes of determining which Annuity Purchase Rate to use?

For example, if a participant turns age 71 on October 9, 2012, may I use the APR for age 70, as long as the distribution occurs by October 8, 2012?

If the answer is no, could you please provide the citation in the 415 regs?

Thank you!

[Effen]

IMHO I think you should always use the exact age a the date of distribution. The only Reg. I will cite is 411(d)(6).

However in your example, the APR declines with age, so depending upon the date of the accrued benefit you are using, you could be overpaying if you use the age 70 factor.

I suggest you discuss this with the plan's actuary.

[Andy the Actuary]

It is possible the plan language provides the answer.

[david rigby]

Based on your phrase, "...for purposes of determining which Annuity Purchase Rate to use", it appears you are using some sort of table lookup. As Effen correctly points out (and as any actuary can tell you), a table lookup is a convenience. In these days of computer capability, it's probably not appropriate to use an old definition of "convenience". While most tables are built around mortality rates that change annually, any actuary can build a spreadsheet that will create a table using monthly rates (for example).

In my opinion, using age nearest birthday fails the test of convenience (unless specified in the plan document). For example, I've seen "completed years and months" used as an interpolation basis. Others may prefer greater precision, such as years/months/days; my view is that method implies perfect knowledge of the exact payment date, which is often not the case. So choose an interpolation method that is reasonable. And be consistent.

[FAPInJax]

There is something in the back of my mind regarding the dollar limit adjustment prior to 62 that is described in terms of the age based on completed months. I recollect an example where the participant was an oddball age for purposes of illustrating the calculations. This would appear to have possible relevance to this discussion if 415 is involved.

[Calavera]

I suggest to use the participant’s age based on completed calendar months as of the annuity starting date, since this is what you should use to calculate the adjustment for retirement after age 65 for 415 purposes (1.415(b)-1(e)).

[Guest Dave Peckham]

Calavera and David Rigby,

Thank you for your comments. I did find quite a few examples of age in "years plus completed months" in Reg. Sec. 1.415(b)-1, so I feel comfortable in using that measure of age.