Maximum monthly benefit, Retirement age 55, as of 12/31/11

[RayJJohnsonJr]

For a person retiring on 12/31/2015 at retirement age 55 who's average compensation has allways been above the Annual Limit on Includible Compensation, what would the maximum monthly Defined Benefit as of 12/31/2011? I'm a little confused on that calculation.

Thank you.

[Effen]

I am a little confused by your question. You said he was retiring at 12/31/15, but then you asked for the maximum benefit as of 12/31/11.

Is this a valuation question or a benefit calculation question?

The benefit at 12/31/15 can't be determined until we know the 415 max for 2015.

[RayJJohnsonJr]

Sorry, I phrased that wrong. The reason I put as of 12/31/11 is because the 415 Limit for Defined Benefit Plans in 2011 was $195,000/yr, while the 415 Limit for Defined Benefit Plans went up to $200,000. So what I meant to ask is the maximum monthly benefit, age 55 retirement, retiring 12/31/2015, based on the 2011 max 415 Limit of $195,000. (Not using the 415 Limit of $200,000.) This is a benefit calculation question.

Thank you.

[Effen]

If you are asking, for a 2011 actuarial valuation, what is the maximum benefit I can fund for participant who is expected to retire at age 55, then I would say the answer is somewhere near $120,886 as a annual life annuity. (I don't think the expected retirement year is relevant.) This assumes the actuarial equivalents in the plan document use 5% interest and the applicable mortality table. It also assumes there is no forfeiture on death. There are lots of other issues to consider, but I think this is what you are looking for. This also assumes your participant will have 10 YOP and YOS.

If the plan pays lump sums, this opens up a whole new set of issues where the answers depend on the actuarial equivalents stated in the document.

I am sure you will get other opinions, but that is what I would generally use.

[RayJJohnsonJr]

If you are asking, for a 2011 actuarial valuation, what is the maximum benefit I can fund for participant who is expected to retire at age 55, then I would say the answer is somewhere near $120,886 as a annual life annuity. (I don't think the expected retirement year is relevant.) This assumes the actuarial equivalents in the plan document use 5% interest and the applicable mortality table. It also assumes there is no forfeiture on death. There are lots of other issues to consider, but I think this is what you are looking for. This also assumes your participant will have 10 YOP and YOS.

If the plan pays lump sums, this opens up a whole new set of issues where the answers depend on the actuarial equivalents stated in the document.

I am sure you will get other opinions, but that is what I would generally use.

That's perfect Effen. I knew there was a discount in the benefit for retirement age less than 62. The participant will have 10 YOP and YOS at retirement age. I presume the actuarial equivalents in the plan document and the mortality table determine the discount percentage. Thank you, that was exactly what I was looking for.