Death Benefit & 415 Limit

[Penman2006]

I provide actuarial services to a TPA and I was just sent the 1/1/08 data. The situation is: DB plan with an owner past NRA and receiving annual actuarial increases on his AB. His 415 benefit limit is based on his high 3 average salary of $125,000. The owner died during 2007. The plan death benefit is the PVVAB. As of the date of death the PVVAB is restricted to the 415 lump sum limit (this restriction just happened btw). The spouse has not taken the distribution yet. The spouse was entitled to $1,290,000 at the date of death. At this point in time if I were to value the deceased participants PVVAB the amount would be $1,250,000 ($40,000 lower) becuase he has aged a year and the 415 maximum lump sum is based on the comp limit. Can she now take out the $1,290,000 she was entitled to at the date of death? I guess that would be looking at it like at the date of death she became a participant in the plan with an account balance rather than an annuity. Not sure if that's acceptable?

The plan is now being terminated. At 1/1/07 the assets and liabilities were very close. During 2007 there was a large increase in the assets and now there are significant excess assets. I can't see how the spouse could share in that given the death benefit is the 415 lump sum but if anyone has any ideas I would like to hear them.

[Mike Preston]

It is what it is. What is the death benefit? If it is a lump sum then that is the account balance as of the date of death and it shares in earnings from that point. What else could it be?

[Penman2006]

Well, I am trying to make sure it would not be the participant's lump sum at the date of actual distribution. I agree the lump sum at date of death makes sense and that was my thought as well but I am just trying to be careful, it's not like this kind of thing comes up all the time for me.

So the spouse gets her "account balance" in the plan as of date of death, and you say that account balance becomes basically a segregated account that shares in the asset gain/loss until actual distribution. That will more or less solve the excess assets problem.

Thanks for your help.