Limit Funding Target by 415 LS limit?

[Guest raintrain19]

A dummy DB plan with the following assumptions:

• NRA 62
• 100% participants receive lump sum distributions (aka fund to lump sum)

Let's assume this is a 1-man plan who is age 60. His PVABs are as follows:

• AEQ LS: $350K
• 417(e) LS: $420K
• 415 limited LS: $380K

The current funding target, calculated by our 3rd party software is about $420k. My question is, should the funding target be limited to the 415 max? It seems odd to me that if this person were to put in $420k, and then terminate the plan, his lump sum would be limited to $380k. I've looked in quite a few places and cannot find anywhere that the funding target should be limited by the 415 max lump sum amount.

Any help, citings, etc. would be greatly appreciated on this one. Thanks.

[david rigby]

My question is, should the funding target be limited to the 415 max?

For a DB plan, don't you limit the benefit, rather than the PV?

[Andy the Actuary]

Calculate the benefit limiting to 415 in accordance with your actuarial assumption regarding payment form. If that is lump sum, there is your answer. This is consistent with what David offered.

[Guest raintrain19]

I'm going to alter the above scenario a bit:

• NRA still 62
• Still fund to the lump sum
• Plan uses GAR94 @ 5% as AEQ

Participant is now 69 and has received an SOB notice. Average annual comp is 40,000 and monthly life annuity benefit is 3,333.33 (415 max). The following are four separate LS amounts, all at age 69, all used in some way to determine either the FT or the LS payable at age 69:

1. GAR94 @ 5%: $423K
2. 417e @ seg rates: $453K
3. 105% of 417e @ seg rates: $475K
4. 417e @ 5.5%: $417K

The 415 max is the smallest of (1,3,4), which is $417K.

How would you calculate the FT with the above numbers? I would think that it'd be the max of (1,2), limited to the 415 limited above. Thoughts?

[Calavera]

Does your plan document specify to use GAR94 @ 5% for lump sum calculations?