Post-NRA 415 Increases for In-Service Distributions

[Rob P]

Hopefully someone can shed a little light on 415 increases for participants that are receiving benefits under a plan while still active employees. I read both David MacLennan’s articles and Tom Finnegan’s IRS comments on MASD and am still confused as to whether I have an issue or not.

For simplicity let’s assume that I have an active participant who at age 65 elected under an in-service provision to start receiving monthly benefits in 2011. His AB under the terms of the plan was $18,000/mo or ($216,000/yr) but was limited to 415 and only started receiving the IRS limit of $16,250/mo (or $195,000/yr). He has a high-3 comp of $245K and more than 10 years of service and participation. Again for simplicity let’s assume the age 66 2012 415 dollar limit is $206,000 (i.e., the age 65 $200,000 limit AE to age 66). Also, the plan does not have a lump sum distribution option.

Question 1 – Assume the participant is still age 65 in January 2012 can he automatically increase his monthly distribution for January to $16,667 (i.e., $200,000 / 12)?

Question 2 – Assume the participant is age 66 in January 2012 can he automatically increase his monthly distribution for January to $17,167 (i.e., $206,000 / 12)?

[SoCalActuary]

Q1 - yes

Q2 - Does your 206,000 reflect the benefits previously paid? If so, then it gets my vote.

[Rob P]

Thanks for the response.

So if I understand your conclusion, the basic 415 COLA adjustment should automatically satisfy the MASD rules (or at least ASPPA's recommended rules), but the actuarial increased 415 for age (from 65 to 66) will require a more detailed thought process.

My problem is that I've spent a good deal of time reading these articles but I don't have a good understanding of how ASPPA is recommending adjustments for COLAs. From what I understand, the benefits must satisfy 415 at each ASD.

So if I do a AE from 66 to 65 and the result is less than my 65 415, should I be okay?