415 lump sum calculations

[FAPInJax]

I think I am going blind. Would someone please point out to me where the following calculation is OK??

A participant has an accrued benefit of X which is coincidentally equal to their high 3 average compensation (which is not remotely close to the dollar limit).

Can't the plan pay the lump sum value of this benefit as long as it does not exceed the lump sum of the dollar limit (using the applicable rate and mortality)??

In other words, the lump sum limit is NOT computed on the smaller of the 100% of compensation limit and the dollar limit. It is strictly computed on the dollar limit.

Thanks in advance.

[Guest Ron Sevcik]

It depends. Based on 415(b)(1), the annual benefit cannot be greater than the lesser of the dollar limit or the 100% of compensation limit. If the form of benefit is not a life annuity, it must be converted to a life annuity. These calculations are done at the participant's current age. If the participant is younger than the retirement age in the plan, then the 415 lump sum limit of his 100% of comp could be larger than the lump sum based on the plan assumptions. However, if he is at or beyond the retirement age in the plan, then the 415 lump sum limit of his 100% of comp is the maximum.

[Blinky the 3-eyed Fish]

In short, the Hi-3 does factor into the calculation of the lump sum limit.

[SoCalActuary]

To follow up: you would not be able to give a lump sum equivalent of a 100% J&S with 15 year certain on 100% of pay, just because it is less than the 415b dollar limit.

You would convert the benefit to an equivalent straight life annuity to compare with the benefit on the IRS assumptions, which must not exceed the lesser of 415b dollar limit or 415b 100% of pay limit.