Calculate maximum lump sum

[ombskid]

Sole proprietor retiring at 62 with an accrued benefit approx $12k a month. Is his lump sum calculated with plan or 417e rates, rather than 415 rates because his benefit is not at the 415 maximum?

[Effen]

Both. You determine his maximum 415 lump sum, based on the plan document and the applicable regulations, and compare that to his benefit under the plan.

Most likely, the 415 maximum lump sum won't come into play, unless he is near the 100% compensation limit.

[My 2 cents]

To make that a bit clearer - calculate lump sum without regard to 415 based on plan provisions. Call that "$A".

Calculate lump sum equivalent of participant's 415 limitation (taking into account 100% of pay compensation limit and any adjustments for service or participation under 10 years) based on statutory basis or plan's equivalence basis (whichever produces the lower amount). Note that plan's benefit formula does not come into play here. Call that $B.

Lump sum limit is lower of $A or $B.

[ombskid]

To make that a bit clearer:

If 12k accrued benefit is 100% of pay, but considerably less than the current dollar limit does lump sum get calculated using lesser of 415 rates or plan rates, or just plan rates?

[Effen]

100% of pay IS the 415 limit and therefore you need to consider the 415 rates to determine the maximum lump sum.

[ubermax]

It's been awhile since I've looked at this but unless the 415 reg has been amended since that time I remember it this way :

(Comp Limit adjusted as 2cents noted) x Min( APR(plan factors) , APR (5.5%, Applicable Mortality), 1.05*APR(Applicable Factors) )

Applicable Factors are of course the 417(e) interest and mortality factors .

I edited the original post to replace $Limit with Comp Limit since the OP noted that the

Comp Limit was < the $ Limit of Section 415 .