415 Limitations-414(k) Accounts

[JAY21]

I've always "understood" that 415 limitats applied to distributions out of a DB plan whether or not some/all of the benefits is coming out of a 414k account within the DB plan. In other words, if a participant segregates his benefit in a 414k account and self-directs the investments which do so well that the ultimate distribution would exceed 415 limits, can he receive the full 414k account if as of the time he segregated the assets into the 414k account the 415 limit was not violated back then. I think 415 limit still applies to the current 414k account. Any thoughts or disagreement on this ?

[David MacLennan]

It depends primarily on how the plan document addresses 415 limits and the 414k account, and whether it has a favorable opinion letter to provide reliance. In addition, if the 414k account has any "defined benefit" aspects, such as a guarantee the 414k benefit will not fall below the DB benefit from which it came, then that weakens any argument the DB 415 limits don't apply. Note that this is somewhat of a controversial area. However, Code Section 414k is clear that the DB limits don't apply.

414(k) Certain plans

A defined benefit plan which provides a benefit derived from employer contributions which is based partly on the balance of the separate account of a participant shall

414(k)(1) for purposes of section 410 (relating to minimum participation standards), be treated as a defined contribution plan.

414(k)(2) for purposes of sections 72(d) (relating to treatment of employee contributions as separate contract), 411(a)(7)(A) (relating to minimum vesting standards), 415 (relating to limitations on benefits and contributions under qualified plans), and 401(m) (relating to nondiscrimination tests for matching requirements and employee contributions), be treated as consisting of a defined contribution plan to the extent benefits are based on the separate account of a participant and as a defined benefit plan with respect to the remaining portion of benefits under the plan, and