415(b) Service Reduction

[Guest Mike Spickard]

We have a potential client (DEF) that wants to max. fund a DB plan over 4 to 5 years but wants to take as little comp. as possible. The corp. will be new - effective 1/1/2003. The 415(B) limit (reduced for participation less than 10 years) at the retirement age of the participant is about $64,000. I would like to recommend that he pay himself a salary of $64,000 for 3 years to generate this benefit. However, there is the problem of the reduction in the 100% of pay limit for service less than 10 years.

My question is: Can the Plan credit service with ABC, a prior unrelated (somewhat) employer, so that he does not get slammed by the 415(B) service reduction? Or does predecessor service credit apply strictly to eligibility and vesting? I say they are somewhat unrelated because the participant used to be an officer and minority shareholder (about 5%) of ABC, and ABC will be paying the new company (DEF) for consulting services.

[Guest merlin]

Mike, what do you mean by "somewhat unrelated'?The 415 aggregation rules require aggregation of any enitities in which a person has >50% ownership. But if you have to aggregate the benefits you also get to aggregate the service/participation. See Q&A 8 of the 2002 ASPA IRS Q&As. Does this help?

[Guest merlin]

Sorry ,I missed the 2nd half of your question. Looks like you're out of luck.