Maximum Lump Sum Calculation

[Guest s.c.semler]

I have a terminating DB plan with excess assets. The NRA as defined in the plan document is 65.

Two of the principals have an accrued benefit equal to the pro-rated 415 dollar limit. Each of them is less than age 62.

Since there is a provision in the code allowing for an unreduced 415 maximum benefit to be payable between the ages of 62 and 65, I'm trying to determine if it's permissible for these two gentlemen to receive a lump sum benefit based on the unreduced 415 dollar limit payable at age 62.

Or would this be no good since the plan states the NRA is 65.

Of course there would be a further reduction from 62 to their attained age but starting with an unreduced benefit at 62 instead of 65 will help eat into the excess.

Thanks!

[Andy the Actuary]

The plan could be amended to allow for unreduced early retirement provided it could be demonstrated that the amendment did not discriminate against non-highly compensated individuals.

[ScottR]

I have a terminating DB plan with excess assets. The NRA as defined in the plan document is 65.

Two of the principals have an accrued benefit equal to the pro-rated 415 dollar limit. Each of them is less than age 62.

Since there is a provision in the code allowing for an unreduced 415 maximum benefit to be payable between the ages of 62 and 65, I'm trying to determine if it's permissible for these two gentlemen to receive a lump sum benefit based on the unreduced 415 dollar limit payable at age 62.

Or would this be no good since the plan states the NRA is 65.

Of course there would be a further reduction from 62 to their attained age but starting with an unreduced benefit at 62 instead of 65 will help eat into the excess.

Thanks!

I don't think the plan's NRA has anything to do with it. To compute the current 415 lump sum limit...

1) Compute the max monthly benefit payable under Code Section 415 starting on participant's 62nd birthday. i.e. $1625 x YOP (max 10 yrs).

2) Compute the immediate monthly benefit that is actuarially equivalent to the deferred monthly benefit computed above. It should be done two ways: based on the plan's defn of AE, and based on 417e mortality table and 5% interest. Take the lesser of the two results.

3) Compute the lump sum equivalent of the Step 2 result two ways: using 417e mortality and 5.5% interest, and using plan's defn of AE. The lesser of these two results is the Section 415 max permissible lump sum benefit.

... Scott