415 Limitation

[Guest Sieve]

I'm not a DB heavyweight, so I'm hoping some of you will weigh in on this one . . .

Must the 415 limitation be actuarially reduced based on the form of distribution? Is the answer the same if the form of benefit is a 50 J&S?

If it is not required that there be an actuarial 415 reduction for a J&S, is there any circumstance where the 415 limitation can/will be actuarially reduced for a 50% J&S form of payment?

[AndyH]

I'm not a DB heavyweight, so I'm hoping some of you will weigh in on this one . . .

Must the 415 limitation be actuarially reduced based on the form of distribution? Is the answer the same if the form of benefit is a 50 J&S?

If it is not required that there be an actuarial 415 reduction for a J&S, is there any circumstance where the 415 limitation can/will be actuarially reduced for a 50% J&S form of payment?

1. Yes, unless it is the QJSA.

2. Sure, if the plan says that the optional forms (including the QJSA) are the actuarial equivalent of the normal form, or if the form is not the QJSA.

In other words, the QJSA would be reduced by plan terms if not explicitly "subsidized" under the terms of the plan. The 415 limit is based on the lesser of the benefit adjusted using plan factors and the benefit adjusted using statutory factors (in this case no reduction).

[JAY21]

If the 415 limit is going to be payable as a lump sum then it must be present valued on a single life basis (using statutory mortality table and interest rate comparisons to the plan's actuarial equivalence) even if the normal form is a subsidized 100% J&S (or 50% J&S). If this benefit (415 limit) is actually taken as an annuity benefit then it can be paid without reduction over the 2 joint lifetimes if the normal form is a subsized J&S and such a J&S is elected.

In addition to the lump sum determination based on a single life annuity, the other classic example they usually give for a reduction is if someone elects a 10 certain & life benefit (first 10 years of payment guaranteed) usually in this example the normal form of payment valuation is only a single life annuity.

[eeyore]

It sounds like Jay and AndyH both believe the relief under Section 415 for a QJSA is limited to cases in which the J&S benefit is subsidized. I disagree. The relief applies to all QJSA distributions, whether the plan subsidizes these or determines them as actuarially equivalent to the life only form. In answer to Sieve's question, the only time you don't get the relief for a J&S distribution is when the option is not a QJSA, which usually means the joint annuitant is not the spouse.