415 limits on plan termination following monthly pmts

[AndyH]

DB plan with top 25 restriction provided large accrued benefit to owner, who then retired and also got divorced.

Full benefit (at 415 limit when owner retired) assigned by QDRO to former wife, who started collecting in as a life annuity with the intent to convert to lump sum when plan is sufficiently funded.

Now the plan sponsor (company is now run by the son) wants to terminate and fully fund the plan. Mom has been receiving a large pension monthly for several years now.

How is the amount payable as a lump sum to be determined considering the payments received since the 415 regulations have this section "reserved"? Must the old 415 limit be used and the lump sum reduced by the pv of the monthly payments?

Any suggestions to avoid a cutback to Mom other than to have the plan buy Mom an annuity of select a reduced lump sum?

Can we put Mom on the payroll for 1 hour and then take advantage of the current 415 limit? Or can we use the current 415 limit regardless?

[Mike Preston]

Nobody knows. That is why it is "reserved."

Putting her on salary won't have any impact because the limitations on her benefits are based on the participant spouse's employment. Is he still employed? Has his compensation gone up? Use his limitation.

At this point, the conservative course of action is to satisfy 415 at the commencement of the benefit stream and again at the new annuity starting date. As you noted, at the later annuity starting date you have to increase the prior payments and this can reduce the lump sum available dramatically.

[rcline46]

My opinion - Plan owes monthly benefits of $5,000. Whether paid for 1 year or 15 years, if converted to a lump sum, it is the lump sum value of $5,000 per month at the person's current age. No adjustments.

[AndyH]

Thanks for the comments. I like rcline's approach (and agree with the sentiment) but I suspect the IRS woudn't.

The lump sum would be severely diminished if it were reduced by prior payments.

Mike, do you think putting retired Dad back on the payroll for a day (he has been off the payroll for several years) might allow us to justify use of the current 415 dollar limit for the QDRO-assigned benefit?

[Mike Preston]

Again, nobody knows. I think the conservative course of action would be to require the individual to work enough hours to otherwise be credited with a benefit accrual.

In the absence of that, you would need to look at the actuarial equivalence and rehire provisions. At the point in time that the individual's benefit is actuariallly adjusted, I think you also get the increased 415 limits. Of course, if they have suspension of benefit provisions, there may not be any actuarial adjustments until the individual is over age 70 and 1/2, so the search through the document may be a tortuous one.

[AndyH]

Again, nobody knows. I think the conservative course of action would be to require the individual to work enough hours to otherwise be credited with a benefit accrual.

Well, I can rule that out then. They definitely don't want Dad hanging around!

No SOB language, but I agree it would be a weird calc, then throw the QDRO on top of that! It's going to "take a village" to decide how this gets handled.

Thanks for the sounding board.