Retroactive application of comp limit and career average plans

[Guest stunner]

Can a career average pay pension plan be amended to retroactively apply the $200,000 compensation limit to determination periods beginning before 1/1/2002?

For example, if a final average pay plan is amended for retroactive application of the compensation limit, the accrued benefit starting with the plan year beginning in 2002 will use a final average pay that is calculated using the 200,000 limit for determination periods beginning in 2002 and prior.

Does the same thing happen with a career average pay plan? If the participant earned $180,000 in the determination period beginning 1999, is the amount of benefit earned in that year calculated using the full $180,000, or is it still limited by the old $160,000 limit?

I guess I'm confused because of the following wording in the definition of compensation in the plan document for this client:

"In determining benefit accruals in Plan Years beginning after December 31, 2001, the $200,000 annual compensation limit described in the preceding sentence shall apply for determination periods beginning before January 1, 2002."

It seems to me that in a career average pay plan that the benefit accruals in plan years beginning after December 31, 2001 do not take into account the benefit accruals for prior years and thus there would be no effect of retroactively applying the $200,000 comp limit.

I'm so confused....any help would be greatly appreciated.

[JAY21]

The retroactive application depends on the client's election when adopting the good-faith EGTRAA amendment a few years ago. The election is whether to apply the new higher comp limit prosectively only or apply it retroactively. It sounds like your doc language has the language (election) to apply the increased comp limit retroactively. In that case I believe that even a career avg. would have a retro-active "pop-up" benefit (increased retroactive accruals) which would be funded for via an amendment change base if your funding method has bases. I believe both a final avg. pay plan or a career avg. can have this retroactive pop-up benefit.

[Guest Steve C]

You can get a pop-up under a true career average plan. This would not be true with an accumulation design (cash balance, for example), which is similar to career average (both base benefits on career pay).

With a true career average the 2002 accrual reaches back to pre-2002 compensation. This isn't the case for an accumulation plan, where each year's accrual is based strictly on that year's compensation.