Terminated DB plan - effect on 415

[Belgarath]

Let's say someone who was a sole proprietor, selling ice to Eskimos, had a DB plan and terminated the plan in 1990 when he was 35 years old. Accrued benefit of 100/month payable at age 65, received lump sum of $40,000. (obviously I'm making up numbers here)

Now in 2013, he starts a new sole proprietorship, selling hazing instructions to NFL teams.

He wants to set up a DB plan for his new hazing sales business. Does he have to take into account, for 415 purposes, the benefit he accrued and received under his formerly terminated plan?

[Andy the Actuary]

Absolutely, "yes." Forever. You can find the cite in the 415 regs but logic dictates this. Otherwise, you could start/terminate plans at pleasure to increase the 415 limit.

[Belgarath]

Thanks Andy - that's what I thought. Would matter if his ice to Eskimo business had been a corporation? Based upon how I read the regs, I don't think it would...

[Rball4]

It would not matter. 415 has to do with the individual, no matter how you classify them (i.e. sole prop, s-corp, etc).

[AndyH]

B, the owner's plans are aggregated if he/she owns more than than 50% of newco (this is a modification of the controlled group rule)

From the IRS audit guidelines:

"IRC 414(b), ©, and (m) provide that for IRC 415 purposes, all employees of all corporations which are members of a controlled group of corporations, all employees of trades or businesses (whether or not incorporated) which are under common control, and all employees of the members of an affiliated service group are treated as employed by a single employer. IRC 415(h) provides that for purposes of applying IRC 414(b) and ©, the phrase "more than 50%" shall be substituted for the phrase "at least 80%" each place it appears in IRC 1563(a)(1)."

[My 2 cents]

It would not matter. 415 has to do with the individual, no matter how you classify them (i.e. sole prop, s-corp, etc).

Based on my understanding of the rules, it would not matter if the person owned both business to the point that they would be considered to fall under the controlled group rules. If I earned a pension of $1,000 per month from Company A and then went to work for Company B, even if they were both in the same line of work, if they were unrelated companies then the $1,000 from Company A would not be taken into account in calculating the Company B pension. Work 10 years for each of four unrelated companies and you, too, could possibly receive qualified retirement benefits of more than $500,000 per year!