What is the 415 limit based on prior plan distribution

[Jakyasar]

Hi

Might be a stupid question, also made up numbers to understand the method.

Assume all calculations are for 2022.

73 year old has a prior db distribution, let's say $15,000/month after all actuarial calculations. done many many moons ago.

The new salary average for 2022 is $24,444.44/month - 100% of compensation limit (385k+290k+305k averaged)

415 dollar limit is $30,000 - made it up.

What is his 415 maximum AB?

1. Is it $24,444.44/month less $15,000/month i.e. $9,444.44?

OR

2. Is it $30,000/month less $15,000/month i.e. $15,000/month?

If it is (1) then the 415 LS would be $9,444.44 * APR @ 2022 417e table @73 @5.5% (assume plan AE assumptions provide much higher LS)?

What am I missing here to determine max 415 AB and LS?

Thanks

[C. B. Zeller]

Your question is about adjusting 415 for multiple annuity starting dates, which is a complex topic. The IRS found it complex enough that they have never finalized their proposed regulations on the subject, replacing them with simply the word "Reserved" in the final regulations. It's not something that can be easily answered in a forum post.

If you're looking for ideas on how to proceed, you can find some experts' thoughts here: https://www.google.com/search?q=415+masd+site%3Aasppa.org

[Jakyasar]

Hi

First thanks for the link.

I am quite aware of the MASD issues but that is not what I am trying to understand here.

The question, simply put, which method do I use for determining the remaining AB, based on 100% of pay or AE of 415 dollar limit at attained age?

I am leaning on 100% of pay, to be very conservative. In my case, it is fine but if someone wanted to push the limits, would the dollar limit be reasonable?

The rest is he said/she said.

 

[Effen]

I assume you meant 285K as the 1st comp in your average as it produces $24,444.44.  Part of the problem with your example, is the $ limit is not $30,000K/month, which would make it higher than the comp limit, so not a reasonable "what if".  

You are also talking about a person who is well over 65, so you are permitted to Actuarially Increase the $ limit, but not beyond the comp limit, so 24,444 becomes a hard max regardless of age.  Therefore, "1" is definitely at least the start of your answer, although the question you aren't asking is what is the value of the offset.  Is it just $15,000, or do you need to actuarially adjust that?  These may be the things CB was referring to. 

Many actuaries believe no adjustment is necessary for 415 purposes and therefore Item #1 is correct as stated, but others would argue some adjustment is required.  IRS has never said, so do something reasonable.  

 

[Jakyasar]

Oh yeah, East coast/West coast, 2 different schools.

15k is assumed to be actuarially adjusted. I do not believe that the amount should not be adjusted. You got paid a LS 15 years ago which should not be the same value today. The question here would be how to adjust it from 15 years ago to the date of 415 determination i.e. what actuarial assumptions.

This is another unresolved discussion.

I am approaching from the most conservative angle i.e. using 100% of pay limit aka 24.4k and reducing it by 15k (prior distribution) and applying 417e@73@5.5% and coming up with the most conservative 415 LS, IMHO.

Tx for your comments

[CuseFan]

I think the person's 415 limit (100% FAE or max $ actuarially increased) is determined without regard to the prior distribution, then once that is determined the person's applicable 415 limit is offset by the actuarial value of the prior distribution. I'm not an actuary, nor do I play one on TV, and also did not stay at a Holiday Inn Express last night - but I do work with a lot actuaries.

[Effen]

I will jump in on the side that the $15,000 does not need to be adjusted.  At the time it was paid, it represented a lifetime annuity of $15,000 per month.  The fact that interest rates have changed and mortality tables have changed, and the individual lived another 15 years, doesn't change that.  Then again, I stayed at a Hilton last night.  

[Jakyasar]

RIP Tom Finneran. He had a session on this a few years back with Jim Holland.

[Effen]

"Finnegan" - but yes, he will be missed.  Great actuary and a great giver to the profession.  

[Calavera]

Just want to mention the extra layer of complexity. In absence of suspension of benefits, it is possible that based on the compensation history, this person's benefits crossed the 415 limitation long time ago, and therefore should have started at that time.