Limit on Payments to Pension Plan Participants

[erisa_novice]

Can anyone point me towards any authority (ERISA or IRC) which holds that a pension plan participant cannot receive pension benefits which are 25% greater than the salary they earned from the the employer? If this is true, does this figure include severance payments and/or payments for unused personal/sick time?

[My 2 cents]

If you are talking about a defined benefit plan, IRC Section 415 prohibits annual pensions in excess of the highest 3-year average compensation.   Section 415 has rules concerning what can and cannot be counted as compensation.  Note that if someone defers commencement beyond Normal Retirement Age in a plan that provides for actuarial increases for the period of deferral, those increases cannot raise the benefit above the high-3 average (once you would get to that point, payments would have to commence).

It is my understanding that defined contribution plans are subject to restrictions on the amounts that can be added in any given year, but there would be no limits on the size of the account balance resulting from those additions to the account.

[erisa_novice]

Sorry, yes, I'm referring to a defined benefit plan.

[david rigby]

It's common to see the various limitations get mixed up. If you can identify who told you about this 25% limit, ask for a cite.  That is, the reference might not be correct for a DB plan, but it may have relevance on a related item.

[My 2 cents]

If it is a defined benefit plan, Section 415 is clear that it is not permissible to pay even 100.01% of the highest 3-year average 415 earnings paid to the participant (let alone 125%).