415 Maximum Lump Sum

[Guest BCMarch10]

If a defined benefit plan has frozen the plan's benefit formula, does the 415 Maximum Lump Sum continue to increase after the freeze date? Specifically, does the 415 Maximum Lump Sum based on the 415 Compensation Limit continue to increase? For example, if a participant has 5 years of plan participation and 5 years of service on the freeze date - does the calculation of the 415 Compensation Limit increase for each additional year of service (up to 10) after the benefit freeze date? If yes, where is the citation in the regs?

This has importance if the frozen defined benefit plan becomes over funded and must allocate the excess assets (but not in excess of the 415 Max Lump Sum).

Thanks

[SoCalActuary]

Only if the document provides for it. However, this is 99% likely to be a discrimination issue because the HCE is the only person who will benefit from a 415 escalation. If you allow this increase, then you don't have a hard freeze.

[Guest BCMarch10]

I have an actuary friend who is claiming this is the correct interpretation based on the regulations:

• the accrued monthly benefit is frozen on the actual freeze date (and will not change)
• the 415 Maximum Lump Sum is not frozen on the freeze date
• the 415 Maximum Lump Sum is calculated based on the lesser of the 1. and 2. below:
  1. 415 Dollar Limit not increasing (Plan Years of Participation does not increase after the freeze date)
  2. 415 Compensation Limit does increase in frozen plans (Years of Service does increase after the freeze date)
  3. And, the actual 415 Limit FOR CALCULATING THE MAXIMUM LUMP SUM DISTRIBUTION ONLY is based on the lesser of the two!!

He claims that the accrued benefit does not change (since it is frozen) - BUT the calculation of the 415 Maximum Lump Sum IS changing.

Who agrees? Who disagrees?