415 increases

[AndyH]

Participant (owner) "retires" and starts pension -life annuity form - at age 65. NRA was 55. At the time the pension started, the amount was at the 415 dollar limit, which was less than the hi 3 comp limit.

Plan is grossly overfunded. Owner happens go back on the payroll for several years (he did go off the payroll when he started his pension). Children are now active in business with owner limited involvement.

Decision is made to maintain plan and increase benefits dramatically, by doing so allocating maximum excess assets to owner, taking into account 415 dollar increases since pension started plus increases in 415 on accounty of later age. Previously, the plan stated that any increases would be offset by the pv of payments made - this language is being removed. Also, subsidized 100% QJSA is being provided to owner (and any other participants).

There are no NHCEs so no discrimination issues.

Question: Is there anything wrong with increasing pension to reflect both the later (call it age 71) age-based 415 limit as well as inflationary indexing of 415?. Something doesn't smell right. I don't think we have 415 ASD aggregation since the payments were and will continue to be made in annuity form (with a lump sum there might be an issue).

Is this ok? Opinions please. Thanks.

[Effen]

I haven't though through everything, but just remember that under PPA, the 415 limit is only actuarially increased for retirement after age up to the comp limit. In other words, the comp limit is the ultimate limit regardless of age. It is still an increase, but its not the big increase it once was. I guess you might be able to argue that he "accrued" it prior to the clarification in the Regs, but that is for lawyers to fight about.

There is some debate/discussion about how you adjust the 415 limit to recognize prior distributions if at all. You might want to search the board.

Personally, assuming all your ducks are in a row on the document, I don't have any real problem with what you are suggesting, assuming the big guy is still working and earning service credits.

You might want to look into the possiblity of discrimination against past participants - were there other participants at the time he started to receive his benefits?

[AndyH]

Thanks for the comments, Effen.

There were no past NHCES (all same family)- so no discrimination issues.

I think I understand the Hi-3 comp rules - the new 415 regs are pretty clear about how that works. In my case it is merely a side issue - Hi 3 grandfathered is around $300K and the 415 dollar limit is less, so I am still focused on how I increase the dollar limit - for both age and inflation or just inflation. I think both but it creates a huge increase that feels weird.

[david rigby]

Plan is grossly overfunded.

I'm not familiar with this concept.

[Blinky the 3-eyed Fish]

So it just boils down to a MASD issue. No guidance so just do whatever you want. (Kidding.) David MacLennan (sorry if I butchered that last name) should chime in since he wrote those nice articles on the subject.

[Effen]

How can you have a "Hi 3 grandfathered around $300K" when the current max comp limit is only $230K?

I guess I'm still a bit confused by your question. The 415 $ limit is determined based on the current year and the individual's current age. What happened in the past doesn't impact that. Once you know their current limit, you may decide to offset it for prior distributions, or not.

[AndyH]

"How can you have a "Hi 3 grandfathered around $300K" when the current max comp limit is only $230K?"

The final regs provide for a grandfather rule of the hi-3 comp limit for plans that as of 4/5/07 did not limit the hi 3 to the 401(a)(17) limit.

"The 415 $ limit is determined based on the current year and the individual's current age. What happened in the past doesn't impact that. Once you know their current limit, you may decide to offset it for prior distributions, or not."

This is the answer that I am looking to confirm. Thank you. I think I found it in 1.415(d)(4)(iii).

Thanks for all the comments. And, yes, this is confirmation that there is one overfunded plan in existence, but only because it was a TRA-86 casualty that was never terminated and kept a ridiculous NRA - I said age 55 for simplicity but it was actually earlier and needs to be "fixed" also.

[mwyatt]

Ah Andy, have you checked the June brokerage statement yet? That month took care of my overfunded plan case load .

[AndyH]

But isn't that what PPA 2 year smoothing is for? Those Einsteins anticipated the 2008 market collapse.