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415(h) expands the 1563(a)(1) controlled group set of connected entities. This expansion perforce affects the reckoning of amounts for 415 compliance, both the annual additions and the 415(b)(1)(B) and 415(c)(1)(B) limits. The following excerpt serves as verification of this situation. Proceed forward for the inquiry. Pursuant to section 414(b) and § 1.414(b)-1, all employees of all corporations that are members of a controlled group of corporations (within the meaning of section 1563(a), as modified by section 1563(f)(5), and determined without regard to section 1563(a)(4) and (e)(3)(C)) are treated as employed by a single employer for purposes of section 415. Similarly, pursuant to section 414(c) and regulations promulgated under section 414(c), all employees of trades or businesses that are under common control are treated as employed by a single employer. Thus, any defined benefit plan or defined contribution plan maintained by any member of a controlled group of corporations (within the meaning of section 414(b)) or by any trade or business (whether or not incorporated) that is part of a group of trades or businesses that are under common control (within the meaning of section 414(c)) is deemed maintained by all such members or such trades or businesses. Pursuant to section 415(h), for purposes of section 415, sections 414(b) and 414(c) are applied by using the phrase “more than 50 percent” instead of the phrase “at least 80 percent” each place the latter phrase appears in section 1563(a)(1) and in the regulations under section 414(c) (except for purposes of determining whether two or more organizations are a brother-sister group of trades or businesses under common control under the rules in § 1.414(c)-2(c)). https://uscode.house.gov/view.xhtml?req=(title:26 section:415 edition:prelim) OR (granuleid:USC-prelim-title26-section415)&f=treesort&edition=prelim&num=0&jumpTo=true URL: https://www.ecfr.gov/current/title-26/part-1/section-1.415(a)-1#p-1.415(a)-1(f)(1) Citation: 26 CFR 1.415(a)-1(f)(1) https://pdfs.semanticscholar.org/b661/5ad7712857a69ffde057d6f233cdc94829ce.pdf Please indicate if 415(h) affects further amounts for scrutinizing compliance. Perhaps to discourage entities in a controlled group from scrambling or recalibrating ownership to provide more advantageous circumstances for compliance, 415(h) might apply further.

Just a curiosity question from a budding actuary In ASOP 27 under "3.9.2 COST-OF-LIVING ADJUSTMENTS" it states that an actuary, for qualified pension plan funding valuations, "may be precluded by applicable laws or regulations from anticipating future plan amendments or future cost-of-living adjustments in IRC limits." This is consistent with what I have always seen done for valuations I work on, which include two plans that provide automatic COLA increases to benefits and have plenty of participants with benefits limited by section 415. When calculating the Funding Target we project the COLA increases in the expected benefit streams for current retirees, actives, and TVs, but constrained to the current plan year limits. I am just curious what "laws or regulations" the ASOP is referring to that prevents us from projecting the limits for funding purposses? In the Gray Book's response to question 1995-11, which asked if future changes in Section 415 limits and compensation limits due to indexing should be treated as plan amendments. The IRS response was "The current position is that all changes in actuarial liabilities due to the section 401(a)(17) and 415 limits are to be treated as plan amendments, even the increases that automatically occur under a plan’s terms." Is this somehow maybe tied to the answer? I primarily work on single employer plans, which are required to use an accrued benefit cost method. So I thought maybe this tied to the definition of an accrued benefit. But I think ASOP 27 covers multi plans too right? And they are not restricted to a specific cost method? So is there perhaps a definition or discussion somewhere around the provisions for calculating liabilities for funding purposes under the applicable parts of the code (430/431?)? I appreciate any insight anyone can offer. I have already spent a long, but fruitful amount of time going down regulation rabbit holes this last week. While I very much enjoy my time descending into them I could use a little help with this one. Thanks!

A participant is catch-up eligible and 415 compensation is $16,500. The participant deferred $8,750 and received a match of $8,750. Does the 415 test pass because $1,000 is re-characterized as catch-up?

I inherited an overfunded one-participant plan. The participant is the 70 year old owner with three year average pay of $100,000. Maximum 415 lump sum is about $1,000,000, but plan has $1,560,000. She could take the lump sum and move the rest to a qualified replacement plan, but the company won't have income going forward (no way to use up the excess) and she wants to close it down (can't have a plan with no sponsor). So I have three questions: 1. If she were to use a Retroactive Annuity Starting Date of her 65th birthday, the back payments with interest would be $560,000. This amount would not be rolled over. Then she could use the $1,000,000 to purchase a life annuity with payments of $100,000 per year. Is this correct? 2. If she first took her RASD payments, could she then take her lump sum of $1,000,000? Or is this a 415 violation? 3. What if she were 71 (70-1/2 in 2019) and already took her RMD for 2019 and 2020. Does this affect the answers to 1 & 2?

One participant plan, 71 year old owner with more than ten years of service and participation. NRA was 65. 3 yr avg pay is $280,000. Benefit is 100% of pay. Distribution will be made on 12/31/20. Actuarial equivalence of $230,000 limit is about $371,000. Lump sum of $371,000 based on AMT at 5.5% is about $3.8 mm. But maximum benefit is 100% of pay, or $280,000. Lump sum of 280,000 based on AMT at 5.5% is about $2.9 mm. Lump sum using 417 segment rates is about $3.5 mm. What is the maximum lump sum for this participant? I’d like to say $3.5 mm, but I’m not convinced. This would not be an issue if 417 rates weren’t so low.

A question is raised regarding the impact of an increase in the 415 limits for a frozen plan. Situation is as follows: Sole Prop pension plan, 10% per year of service formula. At 12/31/18, participant has 6 years of participation and 18 years of service. Comp is $160,000 and accrued benefit is $11,000 per month ( eg 60% x $220,000 dollar limit). The plan is frozen 3-15-2019 before accruing 1,000 hours. The 2019 415 limit is increased from $220,000 to $225,000. The question is what is the benefit used for the FT for 2019? The regs under 430 state that the FT is based on the benefit that has been accrued, earned or otherwise allocated to yrs of service prior to the first day of the plan year. The regs further say that the TNC is based on the benefit that has been accrued, earned or allocated to service from the 1st day of the plan through the val date, which in this case would be the freeze date. The regs are silent with regard to the impact of 415 changes in the dollar limitation. My interpretation is the benefit for the FT is $11,250, e.g. increase in the dollar limit goes to the FT. Any opinions?

Employer fell on hard times and suspended their match but informally promised participants that when their financial situation improved they would make up the missed matching contributions. Employer is now ready to make up the missed matching contributions and several participants are no longer employed. Is there a 415 problem with making contributions for participants who have no current compensation so long as the employer designates the contributions as relating to prior years when compensation would fully support the contributions? This is a tax exempt employer so there's no 404 deduction issue.

Company B is purchasing 100% of the assets of Company A. All employees of Company A will terminate effective July 15. Company A's 401(k) Plan is terminating. Owners of Company A would like to make a discretionary profit sharing contribution to Company A 401(k) Plan for this final plan year. Even though the asset sale will occur on 7/15 and all employees/owners will terminate employment effective 7/15, can Company A elect to wait until 12/31 to formally adopt a resolution to terminate the plan, thus avoiding a reduction in the compensation limit, 415 limit, 1,000hrs allocation service requirement for PS, etc...? As an added benefit, the employer would not have to provide top heavy minimum contributions since the limitation year would be extended to 12/31. While I cannot find anything suggesting the plan is deemed terminated or must terminate as of the transaction date, it doesn't seem right that an employer could manipulate the staff funding requirements by postponing a formal plan termination.

Can a governmental plan permit a participant to purchase an enhanced benefit without relying upon section 415(n) if it otherwise complies with section 415?

Got a quick one - Doctor has had a DB plan for his one-man consulting business since 1/1/2008, and he earns well over any limits to worry about. So 2017 is going to be his tenth year of participation (nominally defined as 1000 hours), and so once he gets his full 415 limit, the idea is to terminate and have him roll over a lump sum. The 415 regulations define a year of participation as calculated to fractions of a year. But they also say the year is credited if the hours are worked. Should I be interpreting that to say it's a full tenth year of participation as of the moment he gets to 1000 hours? Or does it mean he has to actually have the twelve months in the bank? He might get to 1000 hours in June, but if we terminate the plan right at that point, I don't want the surprise that he would only get 9.5/10ths of the $215,000 limit. He'd obviously rather go for the full limit, and so if it's legitimate to count 2017 as a full year 10 before the end of the year, he could terminate and distribute before December 31, thus avoiding any 2018 plan year with its additional costs. Thanks... --Brian Gordon

I have a plan that has a very rich death benefit. If an active participant dies then the spouse gets a 100% J&S payable immediately. There is no reduction for early retirement. The normal form for the plan is 10cc. The benefit is converted to 100% J&S using the plans factors. A participant aged 45 died. The spouse is 41. My question is how to calculate the 415 limit on the benefit. I assume that I would reduce the dollar and pay limits to age 45 by using plan and applicable assumptions and take the lesser of these. What if the spouse decides not to immediately commence benefits? The plan provides for actuarial increase from the date the benefit could have commenced. (Month following death) The benefit will increase each month. Does the 415 limit increase each month also? Do I use the participant's age or the surviving spouse's when calculating the limit?

On October 21, 2015, the IRS issued IRS News release 2015-118, announcing the changes in pensions and benefits limits for 2016. Most limits were unchanged. An updated chart, showing these limits for 1996 to 2016, is available by clicking here.

When a participant has compensation greater than the $265,000 compensation limit for 2016, is his deferral election percentage applied based only on his $265,000 compensation, or on his full compensation for the year? For example, if a participant with $300,000 in compensation elected to defer 6% of pay for 2016, is his deferral election applied to his full $300,000 compensation to result in a total deferral amount of $18,000? ($300,000 x 0.06 = $18,000)? Or is his deferral election applied only to his compensation up to the $265,000 compensation limit, resulting in a total deferral amount of $15,900? ($265,000 x 0.06 = $15,900)?

When calculatiing the maximum benefit a participant can recieve when a Cash Balance plan has an offset feature, is the maximum benefit (the 415 limit say $2.6 Million) before or after the offset? If the Offsetting profit sharing plan for example has $2 million. Is the lump sum beneif only $600k or is it still $2.6 million, which would make the full benefit $4.6 Million? Thanks

New spin on the old question. NRA is 62. Small plan was frozen when participant was 52 years old in 2003 with 10+ years of service and participation. Given the IRS position that 415 applies to the accrued benefit and there was no special language in the freeze amendment, the final annual accrued benefits are $160,000 (2003 $415 limit). Plan is terminating now in 2013, and participant is 62 years old. What is his allowable lumpsum? Step 1: Calculate lump sum under the plan's assumtions (417 October rates for prior year) 160,000 x 14.7734 = 2,363,744 Step 2: Under 1.415(b)-1©(3) the actuarially equivalent straight life annuity benefit is the greatest of: a) 2,363,444/14.7734 = 160,000 (plan's rate) b) 2,363,444/12.4228 = 190,251 (5.5% rate) a) > b) = 190,251 Step 3: Verify whether 190,251 is above or below $415 limit to confirm if I can pay 2,363,744 lump sum. Question is if I am still stuck with 160,000 limit, and therefore lump sum is limited. Or I can use $205,000 for this purposes since it has nothing to do with the accrued benefit, and therefore lump sum is NOT limited.

A dummy DB plan with the following assumptions: NRA 62 100% participants receive lump sum distributions (aka fund to lump sum) Let's assume this is a 1-man plan who is age 60. His PVABs are as follows: AEQ LS: $350K 417(e) LS: $420K 415 limited LS: $380K The current funding target, calculated by our 3rd party software is about $420k. My question is, should the funding target be limited to the 415 max? It seems odd to me that if this person were to put in $420k, and then terminate the plan, his lump sum would be limited to $380k. I've looked in quite a few places and cannot find anywhere that the funding target should be limited by the 415 max lump sum amount. Any help, citings, etc. would be greatly appreciated on this one. Thanks.