415 $ limit for age less than 62

[RLR]

When adjusting the 415 $ limit for benefits commencing before age 62, do you use the 417(e) mortality table and 5% or do you use the plan's actuarial equivalence assumptions and the limit is the lesser of the two? 1.415(b)-1(d)(1)(i) states in part "However, if the plan has an immediately commencing straight life annuity payable both at age 62 and the age of benefit commencement, . . ." What does that mean and does it affect the 415 calculation?

[Andy the Actuary]

see attached

IRS_Sec_415_Final_Regulations_4_5_2007__Fed_Reg_.pdf

[AndyH]

When adjusting the 415 $ limit for benefits commencing before age 62, do you use the 417(e) mortality table and 5% or do you use the plan's actuarial equivalence assumptions and the limit is the lesser of the two? 1.415(b)-1(d)(1)(i) states in part "However, if the plan has an immediately commencing straight life annuity payable both at age 62 and the age of benefit commencement, . . ." What does that mean and does it affect the 415 calculation?

This is a very complicated calculation, and it is in part specific to the plan document. The first question is whether you are calculating an annuity benefit or a lump sum. The two calculation methods are different. But in general you are right - there are at least two calculations, and you take the lesser result.

[Andy the Actuary]

see attached

flowchart_for_final_415_regs_7_26_2007.pdf

[AndyH]

That flowchart is interesting and useful but at least some of it is outdated. The 105% part, for example, no longer applies to plans covering less than 100 participants.

[RLR]

When adjusting the 415 $ limit for benefits commencing before age 62, do you use the 417(e) mortality table and 5% or do you use the plan's actuarial equivalence assumptions and the limit is the lesser of the two? 1.415(b)-1(d)(1)(i) states in part "However, if the plan has an immediately commencing straight life annuity payable both at age 62 and the age of benefit commencement, . . ." What does that mean and does it affect the 415 calculation?

This is a very complicated calculation, and it is in part specific to the plan document. The first question is whether you are calculating an annuity benefit or a lump sum. The two calculation methods are different. But in general you are right - there are at least two calculations, and you take the lesser result.

I'm just trying to calculate the $ limit prior to 62. Once I have that, I will convert it to a lump sum using 5.5% and the app mort table or the plan's act equiv - whichever produces the lesser amount. The plan's AE is 5.5% pre and post and GAM83U post only. Normal form is LO and there is no forfeiture at death. Wouldn't the $ limit caculation be the same whether you're calculating an annuity benefit or a lump sum since it's only upon coversion of the annuity benefit that the assumptions change?

[AndyH]

It does not work that way; you are describing a deferred 415 limit. When a lump sum applies, the calculation is different. See the references to 417(e) on the flowchart that aTa posted.

[RLR]

see attached

Thanks for the copy of the regs - I already have that - just somewhat confused on how to apply them. Thanks also for the flowchart.

[Andy the Actuary]

Does this example help???

Age 51 Years

0 Months

415 @62 $195,000.00

Accrued Benefit $160,659.22

Plan Rate 88.96 GAR94 (no pre), 5%

417(e) 86.52

Greater 88.96

(1) Plan Lump Sum $1,191,020.50

(2) 415 @62 $195,000.00

(3) 415 Reduction to Age on 1/1/2015

Plan Rate 0.4783 GAR94 (no pre), 5%

Statutory 0.4810 2013 AMT, 5%

Lesser 0.4783

(4) 415 Immediate (2) x (3) $93,269

(5) Lump Sum of 415

(a) Plan Rate 185.99 GAR94 (no pre), 5%

(b) 417(e) 192.75

© 5.50% 179.10 2013 AMT, 5.50%

(d) Lesser (a), (b), © $179.10

(e) Lump Sum of 415 (4) x (5)(d) $1,392,040.42

(5) 415 Lump Sum Min (1), (5) $1,191,020.50

[RLR]

Does this example help???

Age 51 Years

0 Months

415 @62 $195,000.00

Accrued Benefit $160,659.22

Plan Rate 88.96 GAR94 (no pre), 5%

417(e) 86.52

Greater 88.96

(1) Plan Lump Sum $1,191,020.50

(2) 415 @62 $195,000.00

(3) 415 Reduction to Age on 1/1/2015

Plan Rate 0.4783 GAR94 (no pre), 5%

Statutory 0.4810 2013 AMT, 5%

Lesser 0.4783

(4) 415 Immediate (2) x (3) $93,269

(5) Lump Sum of 415

(a) Plan Rate 185.99 GAR94 (no pre), 5%

(b) 417(e) 192.75

© 5.50% 179.10 2013 AMT, 5.50%

(d) Lesser (a), (b), © $179.10

(e) Lump Sum of 415 (4) x (5)(d) $1,392,040.42

(5) 415 Lump Sum Min (1), (5) $1,191,020.50

Yes, this is helpful and thank you for taking the time to prepare the example. This is how I normally do the calculation, but in the final 415 regs, it looks like you only use the statutory assumptions to reduce the $ limit if "The plan does NOT have an immediately commencing straight life annuity payable at both age 62 and the age of benefit commencement." If the plan HAS an immediately commencing straight life annuity . . ." then the calculation is performed as you illustrated above. I don't know what that immediately commencing annuity wording means. Do they mean if the plan offers an annuity as an optional form at the early commencement date? The specific part of the regs is in my original post.

[AndyH]

I think it simply means a SLA available at both ages, nothing more.

[JBones]

Example 1 in the regulations, develops "With respect to the single-sum distribution, M's annual benefit for purposes of section 415(b). . ." After developing this maximum annual benefit, the example doesn't use it to develop a lump sum maximum.

ATA's example took a different approach, developing a lump sum maximum, and although I'm sure they reach the same conclusion, I'm just having trouble filling in the gaps.

This is probably a dumb question, but is my interpretation of the regulation example correct that the final lump sum paid is the present value of the lesser of the plan benefit or the "maximum benefit with respect to a single sum distribution", valued using the greater of plan or 417(e) rates?