Can AB be reduced because of 415?

[KJohnson]

Plan documents should be written so that your benefit is "capped" at 415 levels and a participant can never "accrue" a benefit in excess of 415. Therefore, abiding by 415 should never raise a 411(d)(6) issue.

[Guest Ken Newhouse]

The normal form of AB is 10cc. The person is at the 100% of comp limit and is very old. If the 100% of comp limit increases only marginally each year, the 10cc equivalent benefit under 415 will go down even though the SLA may be increasing sligthly. Is this a violation of 411(d)(6) or is he stuck with decreasing benefits?

[Guest]

415 over rides 411(d)(6), and the benefit which you are allowed to pay can decrease as the participant ages. The IRS would argue that no benefit can really be "accrued" if it exceeds the 415 limit.

I assume that you are applying the COLA's to the 100% of comp limit since you said the "100% of comp limit increases only marginally each year".

You may want to consider adding an in-service distribution clause to the document so that you begin paying the benefit, even though he is still employed. This way he won't loose anything further.

[david rigby]

I agree with Keith. Not so sure about KJohnson's recommendation with regard to the accrued benefit.

My understanding is that 415 limits the amount a plan can *pay*, not what it can accrue. Why is this important? I think that if your accrued benefit exceeds the 415 limit, and the plan includes appropriate language, then the amount actually paid can increase as the 415 limit is increased. Have I stated that correctly?

[This message has been edited by pax (edited 06-01-2000).]

[KJohnson]

I agree with Pax that it probably doesn't matter from a practical standpoint, but I typically see languge similar to this in a DB plan so that the Participant never "accrues" the benefit in excess of 415.

"if the benefit the Participant would otherwise accrue in a limiation year would produce an annual benefit in excess of the maximum permissible amount, the rate of accural will be reduced so that the annual benefit will equal the maximum permissible amount."