Question on comp limit

[AndyH]

A DB plan has 7/1/99-6/30/2000 plan year. Plan defines comp as average of high 5 calendar years of comp.

Participant retires 10/2000 and earns $200,000. Is his comp limit for 2000 $160k or $170k?

Would the answer be different if he retired 6/30/2000 (and earned over either limit)?

[Guest nic]

Andy- As I read your question, the earnings you would be using are calendar years 2000, 1999, 1998, 1997, and 1996. If this is true you would limit 2000 pay to $170k. (As it has been explained to me the plan year isn't that significant.)

If, however, you are actually going to use 5 years of pay, that is, include a portion of the 1995 pay, you would need to look at the pay in 12 month blocks, and limit each block based on the limit in effect at the beginning date of the block.

Using your 10/1/2000 retirement date, the blocks would be:

10/95 - 9/96, 10/96 - 9/97, 10/97 - 9/98, 10/98 - 9/99, and 10/99 - 9/00. The first block would use the 1995 limit, the second 1996, ... the last would use the 1999 limit.

If by chance you were actually using a highest 60 month average, the application of the limits gets even more involved. (I know, cause I had to program it in Excel.)

Hope this helps.

[Guest Mr. X]

Nic, please see Reg. 1.401(a)(17)-1(a)(3)(i). As it states, an increase in the compensation limit applies to the plan year beginning in the calendar year. Therefore, in the example given with the 6/30 plan year, I think the question is to which plan year is compensation defined? Is it the calendar year beginning or ending withing the plan year? Only if the compensation for the 2000 calendar year is for 7/1/00-6/30/01 plan year, would the compensation limit would be $170,000.

With that in mind, I am confused as to why such a complicated calculation would arise just because the compensation is defined as a high 60-month average.