What is the absolute maximum DBA value allowed at 65

[Guest doc1962]

I am interested in knowing what a male who has a high income (400K for many sequential years) would have for a value (today) if he had supposedly previously "maxed out" his own single employee corporate DBP and now is 65, assuming todays maximum benefit (195K).

i ask because I am only 50 but my DB plan administrator has told me that I can't make any more DBP contributions because my value is 1.4M. I don't see my current value paying out 195K/year when I am 65 but maybe I am wrong and in 15 years this actually would cover my retirement assuming a 6% return...

Secondly, if I may inquire, I was corporated several years ago with a corporate Defined benefit plan that because it was supposedly maxed out, I closed and rolled into an IRA. That company was later closed. Now I am starting a sole proprietorship business and wanted to open a sole DBP. Is it true that if I maxed out the first DBP, I can't use a new one, with a different company, or now as a sole proprietor, as a retirement vehicle with this new venture? Didn't the last DBP "belong" to the last company?

I apologize upfront if this are naive questions, but I am a busy physician and my "people" never seem to be able to give me layman's answers...

[frizzyguy]

There isn't a table with these numbers but I calculated about 1.4mil as being the maximum. To be honest, I round up more than I would feel comforatble to get 1.4mil. I just did a quick calc though. Nothing offical.

Next, how much of the corporation did you own? If you owned over 50% of the corporation than I think I agree you're maxed out. I don't have enough information, nor am I getting paid to give an offical answer.

I wouldn't blame your people, these topics are very complicated.

<insert circular 230>

[SoCalActuary]

If you owned both the old corporation and the current sole proprietor business, then all the plans are combined.

You want a simple answer, and I respect that wish. But the 415 limits are a career maximum for all your businesses.

[frizzyguy]

Regulation 1.415-8(1) states all qualified defined benefit plans (without regard to wheter a plan has been terminated) ever maintained by the employer will be treated as one defined benefit plan.

This supports SoCal's arguement but I believe that the term "employer" is clarified under 415(h). It states:

415(h)50 Percent Control .—

For purposes of applying subsections (b) and © of section 414 to this section, the phrase “more than 50 percent” shall be substituted for the phrase “at least 80 percent” each place it appears in section 1563(a)(1).

It is by 415 control group. I believe, and I would love to hear the opinions of others, that if an employer owns less that 50% of a company than that company's benefit isn't part of the 415 controlled group of their 100% owned company. They are the same rules as controlled group for nondiscrimination purposes only 80% is replaced by 50%.

[frizzyguy]

Also, I'm not disagreeing with SoCal. I'm just expanding. If anyone knows it, he does.

[shERPA]

The real question is "what is your 415 maximum at age 50?"

Like frizzyguy, a quick calc shows something just under $1.4m, so your administrator is giving you good advice not to put more money in the plan. If you get too much, when it comes out you pay income taxes and a 50% excise tax on the excess assets.

You are right in today's environment this money won't necessarily translate into a $195K income at 65. In computing the maximum lump sum equivalent to the pension benefit, IRC section 415 specifies a rate of no less than 5.5%. If you go to sites like www.immediateannuities.com and play with the lump sum and benefit amounts, you can see that actual annuity prices are much higher than IRS maximum lump sum limits - because the insurance companies are guaranteeing much less than 5.5% in this market.

Things change in the pension world and 15 years is a long time. 20 years ago the IRS had pension plans in court over a 5% interest rate, insisting that the plans must use 8.5%. IRS lost, fortunately.

It's law, it doesn't have to make sense.

[SoCalActuary]

Also, I'm not disagreeing with SoCal. I'm just expanding. If anyone knows it, he does.

Kind thought. Mostly true, but I still get surprised once in a while.

[Mike Preston]

doc1962,

It may be worth your while to see if the two businesses can be separated. There is a PLR (private letter ruling) out there that gives some details on how this is done. The only way for you to confirm whether it is indeed possible to get a new limit in the new business is to hire an attorney familiar with ERISA matters that also is willing to give you an opinion as to whether your businesses are entitled to separate treatment.

The attorney may suggest that you go through the motions of adopting a plan and submitting it to the IRS for approval of the concept.