Frozen Accuals and the 415 Limit

[mming]

A plan freezes accruals and one participant's accrued benefit was being capped at the time to 30% of the 415 high-3 limit based on 3 YOS. A year later the participant has 4 YOS - would his frozen AB increase to the lesser of 40% of the 415 limit or what his AB would've been at the time the benefits were frozen without a cap? In other words, is the frozen AB literally written in stone even though the participant's 415 limit continues to grow? Is the answer different if he was being capped by the 415 $ limit instead?

[Gary]

this is a perplexing issue and various people have differing beliefs on the subject of the effect of 415 limits after a plan freeze.

In looking at the 415 regs (in the past), if the participant would have worked enough hours to receive a year of service for vesting and for benefit accrual purposes, then it does not seem unreasonable to have the 415 comp limit be based on 4 years of service and have the 415 dollar limit be based on 4 yrs of participation.

And if the comp in the 4th year increases the 415 comp limit that does not seem unreasonable either.

With that said all members of our firm does not necessarily see it that aggressively.

I use "double negatives" to make my point as opposed to a simple "positive" as that may be a bit too strong.

Of course the accrued benefit is frozen, but if it were limited by 415 limit then conceivably it could increase.

[Andy the Actuary]

Follow the wording of the plan amendment that froze benefits.

[mming]

Thank you for your responses.

Gary, in this case it would be better if we didn't have to reflect a 415 increase, which appears to be an allowable, though conservative, approach. I would also guess that if it's done this way you couldn't revise the high-3 with higher comps paid after the date the benefits were frozen.

Andy, the amendment didn't specify how the 415 limit may affect the frozen benefits. If this is dependent on an amendment's wording, it would suggest that increasing or not increasing the ABs would both be acceptable methods and that the lack of such detail in the amendment would permit either interpretation.

[david rigby]

... suggest that increasing or not increasing the ABs would both be acceptable methods and that the lack of such detail in the amendment would permit either interpretation.

Maybe, but that's not common. If the freeze amendment is a (relatively) simple statement such as, "... no further accruals after xx/yy/zz", and there is no corresponding exception for 415, then the most common interpretation is that you can interpret it with any exceptions. If you want the 415 exception, another amendment will be needed.

[david rigby]

... suggest that increasing or not increasing the ABs would both be acceptable methods and that the lack of such detail in the amendment would permit either interpretation.

Maybe, but that's not common. If the freeze amendment is a (relatively) simple statement such as, "... no further accruals after xx/yy/zz", and there is no corresponding exception for 415, then the most common interpretation is that you canmust not interpret it with any exceptions. If you want the 415 exception, another amendment will be needed.

[Edit: Yikes, my original typing was pretty bad. Added "must not".]