Maximum lump sum

[FAPInJax]

Well, I thought I had this topic down pat BUT

Participant is age 66

Average compensation 75,000

8 years of service and participation

Therefore, the maximum benefit under 415 is 5,000/ mo.

Actuarial equivalent: 6% GATT (APR = 124.5)

The GATT factors will be 4.92% and GAR94 (APR = 135.2)

What is the maximum lump sum payable??

I thought the lump sum was limited to the smaller of the plan rate or GATT factors.

Sorry, but my mind is just not functioning yet this morning (not enough coffee) Thanks for any and all help!

[Blinky the 3-eyed Fish]

I thought the lump sum was limited to the smaller of the plan rate or GATT factors.

You are correct. So, in this case and using your figures, that maximum lump sum is $622,500.

[WDIK]

At the risk of looking foolish, this will probably fall under the category of "New Things I Learned Today," but I am a little confused. The defined benefit prototype plan document that we use has the following language concerning actuarial equivalence and lump sum payments:

"...for purposes of determining the amount of a distribution payable [in the form of a lump sum], if it produces a greater benefit then Actuarial Equivalence will be determined on the basis of the applicable mortality table and applicable interest rate..." (Emphasis added)

Please excuse my lack of understanding, but any clarification offered would be greatly appreciated.

[Blinky the 3-eyed Fish]

Your language references 417(e). We are discussing 415.

[WDIK]

Thank you.

[flosfur]

What is the maximum lump sum payable??

I thought the lump sum was limited to the smaller of the plan rate or GATT factors.

In my opinion, the Maximum Lump Sum is the GATT lump sum $676,000 ($5k times 135.2).

Once the maximum monhtly benefit is deteremined, S415 lump sum Equivalent is independent of the plan's assumptions (unless it is grandfathered under pre-GATT rules etc).

Plan's interest rate comes into play only when computing the equivalent monthly $Max limit before 62 or after 65.

[Blinky the 3-eyed Fish]

I would invite you to read Rev. Rul 98-1, specifically Q&A-8 & Q&A-9. Let me know if that changes your answer.

[Guest Harry O]

It has been a while since I looked at these rules, but it strikes me as wrong that someone at the section 415 limits would get better lump sum factors than someone who isn't section 415-limited.

[flosfur]

..... but it strikes me as wrong that someone at the section 415 limits would get better lump sum factors than someone who isn't section 415-limited.

Perhaps I am reading it wrong - Do you mean the other way around?

Those "not" at the S415 limit do get the benefit of

higher lump sum factors under Section 417.

[Mike Preston]

What if actuarial equivalence was based on the floating GATT interest rate and the applicable mortality table?

[Blinky the 3-eyed Fish]

Those "not" at the S415 limit do get the benefit of

higher lump sum factors under Section 417.

So, flosfur, are we in agreement now that the max lump sum in this case is $622,500?

[flosfur]

I wasn't been able find (I only looked once) my copy of RR 98-1 which is annotated my notes and many others articles related to it . The topic is still on my "to do list".

[david rigby]

Find a Revenue Ruling.

http://www.taxlinks.com/rulings/findinglist/revrulmaster.htm

[Mike Preston]

Even though the SSRA reduction to the 415 dollar limit is applied on a monthly basis, I don't think the RR is specific as to whether the participant's age is determined to the nearest or closest age, whether you want to use years or months.

[flosfur]

Find a Revenue Ruling.

http://www.taxlinks.com/rulings/findinglist/revrulmaster.htm

Thanks for the link.

Its not that I can't find "a" copy of RR 98-1 (I subscribe to a service) - I can't find my copy of it with notes and articles related to it. I worked through the examples in the ruling and made copious notes. I moved my office a while back and non-client files are still not in order.