Grandfathered 415 Accrued Benefit

[Guest merlin]

Plan Year = Limitation Year = Calendar Year.

Benefit formula = 100% x hi-3 amc

Deferred retiree, age 69 at 12/31/07

Hi-3 amc = 38113

AB at 12/31/07 = 20334 = actuarially increased 415 $ limit = Grandfathered Accrued Benefit

At 12/31/08 the 415 hi-3 = 18750

Is he entitled to an actuarial increase on the GFAB, or is he capped at 20334?

Possible answers:

1. Of course he is. The AI is part of the AB and protected by 411.

2. Of course not. The 415 limit, in this case now 18750, trumps all.

Thank you for any and all thoughts.

[tymesup]

If his high avg comp was 38,113, why would it decrease to 18,750?

[Guest merlin]

The final 415 regs restrict the 100% of pay limit to using the 401(a)(17) comp. On that basis the high 3 at 12/31/08 would be (230000+225000+220000)/36=18750, no?

[tymesup]

Sorry about that, I have to trip on annual/monthly once in awhile.

[AndyH]

Ah, an answer shopper -

I read the reg as grandfathering the accrued benefit as of the pye preceding 4/07, not extending the use of the grandfathered amount beyond that. But that may be a conservateive read and I don't lunch with the reg writers!

But, the language seemed to indicate that a post-employment COLA was possible even if the result exceeded the hi 3.

Merlin, this is merely a reaction based upon a couple of quick reads. I'd consider it a conservative interpretation. It will be interesting to read the comments of others.

[tymesup]

For what it's worth - Tripodi 2008, p 5.80:

Actuarial adjustments to the grandfathered benefit. Although the regulations do not address this issue explicitly, Treasury personnel have acknowledged that the grandfathered benefit, to the extent it is less than the actual average compensation of the participant (without regard to the IRC 401(a)(17) lmit), also may be actuarially increased for late retirement. For example, if the participant's actual average compensation is $400,000, additional actuarial increases in the grandfathered benefit could be made, provided that the annual benefit payable to the participant in any later year does not exceed the lesser of $400,000, or the applicable dollar limit under IRC 415 (b)(1)(A) that is in effect for such later year.

[Guest merlin]

Thanks, tymesup.

I guess it's "tyme" for the boss to pony up and get the 08 edition.

[tymesup]

I'm trying to get us subscribed to TAG. In the meantime, I'm finding that Tripodi has some good stuff.

[ak2ary]

This was a huge issue late last year and at the beginning of this year, The IRS national office has stated publicly in several meetings that it agrees that the grandfathered benefit is not only the accrued benefit as of the grandfather date but also all future actuarial increases (assuming the increases do not raise the benefit above the grandfathered hi 3 year pay)