415 prior plan

[Guest csk]

Facts:

One Participant

Prior Plan existed in 1985-1990-5 Years of Participation

Received distribution payable at 65 in the amount of $3000 per month

New Plan set up in 2003 at age 60 with NRA age 65

Compensation has always been in excess of 200,000

What is maximum benefit permitted at age 65 in new Plan?

1. 160,000-36000 - he gets credit for all participation in prior plan and therefore can accrue 24,800 each of next five years; or

2. 80,000 - can only accrue up to 1/10 of dollar limit (160,000) each of the next five years.

[Blinky the 3-eyed Fish]

There have been many prior discussions on this topic that may enhance my response if you wish to use the search feature.

That being said, the answer to your question is #1. (Of course, I am assuming the prior plan is with the same company, or a related company, as the new plan.) Also, you say that the distribution was $3,000 per month payable at 65, but it is highly unusual in the small plan world for a participant to receive a delayed annuity form of distribution or any annuity for that matter. Are you sure he didn't receive a lump sum distribution? If so, then neither of your choices are correct.

[Guest csk]

Ok, participant did receive lump sum benefit based on an accrued benefit payable at age 55. The $3,000 monthly amount represents the value of the benefit payable in an annuity starting at 65.

What is the correct amount assuming lump sum benefit?

Also Plans are from same Employer.

Thanks.

[Blinky the 3-eyed Fish]

There is no absolute correct answer on this. The prior discussions will outline the different methodologies people can take. Personally though, I like to take the lump sum and convert it to a benefit (to age 65 in this case) based on the current plan's actuarial equivalents. That figure is the amount of the 415 dollar limit that has been "used up", and so the rest can be funded for.

[AndyH]

I have taken the prior distribution and accumulated it at the current current liability interest rate, and offset the maximum lump sum by that. This procedure came from an ASPA outline a few years back, the author of which fairly recently confirmed that it was in his opinion still as reasonable a method as any.