How to determine the 415 limit under a new DB plan when there was a benefit from an old DB plan of the same employer, under old and proposed rules.

[Guest saeissler]

Participant has a normal retirement age of 69 as of 12/31/04, the valuation date I am working on. He is a sole proprietor and had a previous DB plan that was terminated, when he was 65. Full benefits were paid out as a lump sum. He is subject to the 100% comp 415 limit.

Last year his maximum benefit was calculated by updating the prior plan benefit of $6,887 from age 65 to age 69, using the plan rates and mortality in effect at the time the new plan was started. Then this updated amount was subtracted from the 100% comp limit, to determine the benefit he could have under the new plan. When the new plan was started, the plan was a 412(i) plan, so the interest rate used was 3%. The plan is no longer a 412(i) plan and the actuarial equivalent interest rate is 7.5%.

My first question is, since the plan interest and mortality rates were changed after the efrective date of this new plan, shouldn't the update in the prior benefit be using the current plan rates for the year of valuatiohn, or was the offset in effect set at the time the new plan was started.

My second question is, under the proposed regulations, to be effective in 2007, I believe that I will have to update the old benefit to the greater of the amount using 5% 1995 GAR or the current plan rates - according to the multiple annuity start date rules of 1.415(b)-2, regardless of the answer to the above. Agree?

[Guest saeissler]

Sorry - I meant 1994 GAR...

[ombskid]

I found this old question and wish to add to it.

Suppose this person was the 100% owner of a corp that had the old plan. Now he has a new corp and wants a new plan. For the new plan, can you count service in both companies that this person owned?

Participation in both plans?

[AndyH]

ombskid, yes, the old and new plans are aggregated for participation and most importantly 415 and presumably service since participation is a definite yes.

Susan, Mike Preston gave me his opinion on this issue in a post within the last year if you want to do a search. Blinky told me to "go with your heart". Just one question, though, a new 412(i) plan for a 68 year old?

[Guest saeissler]

Yes, Andy, evidently the owner plans to keep working for at least 5 years more. I can relate to that - I have the same retirement "plan".