DB 415 Limit question

[fiona1]

I was hoping someone could help me out regarding the compensation limit when determining 415 limits for a DB plan.

The ERISA outline book says "The compensation limit is prescribed by IRC 415(b)(1)(B) and equals 100% of the participant's average annual compensation. Average annual compensation is the highest average of the participant's section 415 compensation over 3 consecutive years of service. Treas. Reg. 4.415-3(a)(3)."

My question has to do with counting the compensation in a year in which a participant terminates.

Let's say a participant has the following 415 compensation:

1/1/02 to 12/31/02: 55,000

1/1/03 to 12/31/03: 58,000

1/1/04 to 12/31/04: 62,000

1/1/05 to 10/12/05: 57,000

Would you count the 2005 compensation even though the participant terminated in that year?

Thanks for any help!

[david rigby]

Everytime I went to math class, 57 was greater than 55.

[JAY21]

It's probably going to be tied to whether the person had a "year of service" as defined in the plan document (including the 415 limit section). With the late-in-the-year term date you showed in your example it's likely a full-time employee would have 1000 hours (assuming that's the criteria) for a "year of service" and therefore you would count it.

[fiona1]

Thanks pax - Looks like you didn't do so well in English class though since you evidently didn't read the entire post.

I realize that 57 is greater than 55 - but my question centers around if you would use the 2005 compensation or not.

Thanks Jay21 for "year of service" information. I'll take that information and go from there.

[Guest ritchie]

Ooh. Doesn't that pax guy get slappy sometimes. But at least he's not like that mean fish.

[wmyer]

Also recall that the 100% of average compensation limitation is reduced if the participant has fewer than ten years of service.