Multiple Annuity Starting Date for 415

[ac]

The owner of a business with a DB plan is past normal retirement age. He received a lump sum of $2 mil based on the maximum 415 benefit limit on 12/31/05. The lump sum was calculated using 5.5% and 94 GAR.

The owner has continued to work. His compensation is 250,000. He is entitled to an accrual for 2006. The plan is being terminated as of 12/31/2006.

Question: How is the owner's accrued benefit as of the end of 2006 determined?

[Effen]

You will probably get several different responses, but this is what I would do (assuming the document agrees):

1) Determine age/service benefit at 12/31/2006

2) Determine the 415 limit at 12/31/206 (ignore previous distribution)

3) Determine the actuarial equivalent of the ben paid on 12/31/2005, rolled up to 12/31/2006. (I would ignore the fact it was a lump sum and deal specifically with the monthly AB)

4) Min(1,2) minus 3 - this could easily be $0.

If he really took the 415 max and if he had 10+ YOP, he probably won't be eligible for any additional benefits since he already was paid the max. I don't think that he should get more, just because the lump sum rates are lower in 06.

Make sure to check your plan document first to see what it says.

[Blinky the 3-eyed Fish]

I am one to disagree. While I understand the proposed 415 regs are just that, I would be hesitant to deviate from them when calculating how to account for prior distributions. So in step 3, I would convert the LS to a SLA as described.

I do think he will likely be entitled to more because of the increase in the 415 limits and because of PFEA's expiration.

[ac]

I am one to disagree. While I understand the proposed 415 regs are just that, I would be hesitant to deviate from them when calculating how to account for prior distributions. So in step 3, I would convert the LS to a SLA as described.

I do think he will likely be entitled to more because of the increase in the 415 limits and because of PFEA's expiration.

Blinkey, I agree with you. I want to follow the Proposed Regs. How would you convert the lump sum to an equivalent SLA (assumptions)?

[ak2ary]

Jim Holland said in Boston last week that the MASD section of the 415 regs will be reproposed (with reliance)when final regs on 415 are issued (likely next month or so)

There is no reliance allowed on the current 415 proposed regs sooooo... If I were you I would wait until the reproposed regs are issued or you will have to revist the distribution after they are issued since you are not allowd to use the current proposed regs as the basis for your plan payment

[Blinky the 3-eyed Fish]

You would have a hard time being faulted for using the proposed regs at this time. Work can't stand still necessarily. Keep in mind there hasn't been guidance to this point and the final regs will not be retroactively effective. You will certainly not HAVE to revisit the calculations.

Ac, I offer the regs for your perusal, although the offer involves your finding them. Sorry, no time.