415 Compensation Limit

[Andy the Actuary]

Facts: An employee with 50 years of service accrued a normal retirement benefit of $30,000 on his NRD 1/1/2006. The employees High 3 Year Comp for 415 is $50,000. The Plan does not suspend benefits but rather gives an actuarial increase. The actuarially increased pension is $60,000. Just to complicate matters, the plan offers a COLA and and provides that lump sums shall assume a 3% increase.

Please comment on whether you agree or disagree.

1. Since the employee is not separated from service the 415(b)(1)(B) limit is not adjusted.

2. The Plan while required to actuarially increase benefits, cannot beyond $50,000 because of 415.

3. When the employee terminates, the lump sum cannot include provision for the COLA since in theory you would be providing for benefits that exceed the 415 limit.

4. I believe a way out or semi-out of this mess might be to amend the Plan to provide for a retroactive annuity start date.

I left out all of the good stuff, which is not relevant to the questions, but begs for sympathy: The COLA caps at 50% of the initial benefit and the standard form of payment is a 10C&L but the COLA applies to the actual payment form. To make matters worse, the benefit is payable at the end of the month. The actual retirement date is the first day of the month except for postponed retirement (after 65) in which case it is the last day of the month.

[Mike Preston]

1. You are correct, it is not adjusted. Just for the curious, under what circumstances is the 415(b)(1)(B) limit adjusted?

2. Correct, but in fact it is $50,000 as a life or J&S. The form you have in this plan (10 yr C&L with COLA) requires a number lower than $50,000. But I agree that would devolve into $50k at SLA.

3. Since the plan doesn't provide for suspension of benefits you already have an impermissable forfeiture. Looks like EPCRS time.

4. The EPCRS correction might very well involve a RASD solution. Don't think you can do one on your own unless you want to fit into the small nooks and crannies of EPCRS self correction.

Good stuff makes for sharp pencils!