415(b)(1)(B) calculation for 76 year old

[Guest Victoria Pelletiere]

Facts: DOB 1/1/1931; DOH 1/1/1990; DOP 1/1/2002; NRD 1/1/2007; 3-year highest consecutive compensations $30,000; $450,000; $200,000.

Question: Is the 415(B)(1)(B) limit $226,667 or $143,333 or $200,000? I have been challenged to produce evidence of the answer. The challenger states that either the $450,000 salary is reduced to $200,000 when calculating the average or the end result is limited to $200,000 (the current 401(a)(17) limit).

[Guest DFerrare]

How about $195,430, which is $160,000 increased actuarially using 5% and GAM'83 mortality and reduced for years of participation less than 10.

Assuming that future compensation is less than $30,000, the high three year average compensation for 415 is $226,667, since 401(a)(7) does not apply for 415 and since the participant has more than 10 years of service.

415 says to use the lesser of the two, which is $195,430.

Now 401(a)(7) does apply for 404 and 412, so the 3 year average is $143,333. The formula in the plan document would have to produce a benefit of 136.35% of final average comp to provide the full maximum.

David

[Guest merlin]

See the audit guidelines on RMDs and limitations on benefits,Announcement 95-99,Section III.C,4th paragraph. "It is important to note that the percentage of compensation limitations of IRC 415(B) and IRC 415© are based upon the actual IRC 415©(3) compensation,without regard to the IRC 401(a)(17) limit. However,the benefits and contributions to which the IRC 415 limitations are applied cannot be based on compensation in excess of the IRC 401(a)(17) compensation limit".

Hope this helps.

[Guest Victoria Pelletiere]

Thank you for the site. This helps a lot.

[Guest merlin]

You're welcome. But don't forget DFerrare's post about the $ limit.