Maximum Permissible Contribution

[Guest MikeMiller]

Is there a difference between the maximum permissible contribution and the maximum deductible contribution to a defined benefit pension plan? If so, how is the max. permissible calculated?

[Blinky the 3-eyed Fish]

There is the minimum required contribution and the maximum deductible contribution. There is no maximum permissible contribution.

Logically thinking, what could it entail?

[Guest MikeMiller]

This is from a prior actuarial valuation that was done at my firm (the person that produced it no longer works here). The way that it is set up, is the max. permissible contribution is equal to the OBRA '87 Full Funding Limitation

I have never seen this before, so I was wondering.

Does this sound like anything you have ever seen?

[Blinky the 3-eyed Fish]

The OBRA full funding limit can reduce/limit the minimum required contribution and/or the maximum deductible contribution, but it is not a separate limit in of itself.

Isn't there an actuary or supervisor around your office to ask?

[Guest MikeMiller]

He is vacationing in Europe for the week.

[MGB]

The maximum permissable is infinite, as long as you are willing to pay excise taxes. Now, if you qualify the statement as the maximum permissable before incurring excise taxes, then there is a difference between pre- and post-EGTRRA. Under EGTRRA, you can contribute the entire FFL (original ERISA version) without being subject to an excise tax. However, it is not all deductible if the deductible limit is less; it just creates a contribution carryover. Pre-EGTRRA, you could not contribute an amount greater than the deductible amount without incurring the excise tax.

I assume the above has no relevance if the old language comes from a pre-EGTRRA report.

Another thing that the language may be implying: This is only a preliminary calculation of the deductible limit with only regard to the defined benefit plan. The actual deductible limit will be determined in conjunction with other plans the employer sponsors and this is not taking them into account. Although it is permissable to contribute this much to the DB in isolation, it may cause nondeductible amounts to be contributed to other plans if they actually contribute this. Of course, any weird interpretation of this language should be clear in the report. If not, then the report does not meet actuarial standards for communications.

Other references that may impact "permissable" include: cost accounting standards (how much can be reimbursed from the government). Also, many years ago HCFA had its own calculation of the maximum for health care providers to be able to include the costs in Medicare reimbursement. There may be other regimes like these that apply to this employer. Again, such things should clearly be spelled out in the report.

[Mike Preston]

While discussing things that probably have no relevance, I'm not so sure the maximum permissable is infinite. Something about the exclusive benefit rule causes a deja vu with respect to an employer that decided to conttribute dollars well in excess of the deductible limit and the IRS found that the sheltering capability with respect to future earnings was enough to make trouble over. OK, OK. I know. I know. (g, d & r)