Grandfathering Pre-Final Reg 415 Benefit

[Guest merlin]

I have a calendar year plan. The owner is a deferred retiree whose high 3-year average (for both plan and 415 purposes) is $695000, established over the years 1997-1999. His accrued benefit by formula at 12/31/07 is 18750/month, his 415 $ limit is 17375. I believe I can grandfather the 17375 as of 1/1/08 when I have to limit his high 3 to 200000.

Am I right?

[Mike Preston]

I believe so. I'm assuming that the terms of the plan have not changed since the publication of the regs.

[Guest merlin]

Nope, nothing changed.

[Andy the Actuary]

And this plan was not top-heavy? Correct?

[Guest merlin]

The only participants are the owner and his wife, so it's t/h, but there are no nonkeys.

[Mike Preston]

OK, I'll bite. Why does TH status matter in this case?

[Andy the Actuary]

Top-heavy is of issue only if you are confused, which I admit I was. I had remembered some pre-tax reform law (TEFRA?) that had limited compensation to $200,000 but after I asked the question and hit the return key, I realized I was dazed that this was a 415 issue. Worse, I was so dazed I failed to withdraw the question. Since you bit, I hope you didn't find this too difficult to swallow.

[Mike Preston]

Not a bit.

[AndyH]

Merlin, "for the benefit of the class", why are you forced to limit hi 3 to $200,000 1/1/08?

[Guest merlin]

The years covering the hi-3 are 1998,1999,and 2000. Subsequent years' comps were 150,000 or less. The EGTRRA 401(a)(17) limit as applied to years prior to 2002 is 200,000. The 1st limitation year after 6/30/07 begins 1/1/08, so the 415 final regs limit my new hi-3 to 200,000.

[flosfur]

I have a calendar year plan. The owner is a deferred retiree whose high 3-year average (for both plan and 415 purposes) is $695000, established over the years 1997-1999. His accrued benefit by formula at 12/31/07 is 18750/month, his 415 $ limit is 17375. I believe I can grandfather the 17375 as of 1/1/08 when I have to limit his high 3 to 200000.

Am I right?

You may be able to grandfather monthly benefit but that is of no consequence if the participant is eventually going to be paid in lump sum, then one is back down to the S415 limits under the new regs.

I believe, the $18,750 monthly benefit and the lump sum equivalent thereof is good through 12/31/07 only. After that you are down to $17,375.

[Guest merlin]

Sorry, Flosfuhr, I don't get it. How could I ever pay the 18750? That exceeds even his current 415 benefit.

[Guest merlin]

Also sorry for the typo, flosfur. Mea culpa