415 Max Payout question

[Lou S.]

Lets say I have some one age 83 what would max Lump sum be? Assume all RMDs have been made and distribution will comply with MASD based on prior RMDs. Will check that separately.  Trying to make sure my software is calculating max lump sum since participant is close to limit.

3 year high salary $200K

Plan AE 5% and current 417(e) table so 2023 Applicable Mortality Table. APR 6.44 * 200K = 1,288,000

But I also need to check against 5.5% and 417(e) Table which would be the same 2023 Applicable Mortality Table correct?

So APR drops to 6.30 and lump sum limit would then be 6.30 * 200K = 1,260,000

Do I have that right?

[truphao]

"So APR drops to 6.30 and lump sum limit would then be 6.30 * 200K = 1,260,000"  - That is your answer given the facts you provided.  However, you also need to check vs LS based on 417(e) rates.  Dependent on your plan documnet choice of the look-up month the final LS might be limited even further (October 2022 looks pretty bad and the whole 2024 will be facing same issues).

 

[Lou S.]

If it's a Cash Balance Plan and 417(e) doesn't apply to the can you use the rules in (c)(2) in which case you could use 5% interest and applicable mortality and (c)(3)(C) would not come into play?

That doesn't seem right but it would be a result I would like.

And if you do need to use (c)(3)(C) it would seem August 2022 5 month look back would be best. Can you amend to a 5 month look back since when you calculate the greater of the 2 on the change the Participant will always come out better, but are you locked into the existing election for 415? Which in this case would be November which might further  limit based on 5.09/5.60/5.41 but August 3.79/4.62/4.69 is unlikely to further restrict.

[truphao]

regarding #1 - nah, I think 3(c)(3) applies.  regarding #2 - I am of opinion that retro amendment does not fly here, but I would need revisit the guidance regarding the look-backs and stability periods.   There were bunch of interesting questions back in 2004/2005?? addressed by both the oficial guidnce and the Graybooks.  In any case, November might work producing the result which will not interfere.   Play the numbers game first before turning onto the legal creativity route.  I would also model delaying the payout until 2025 while starting in-service distributions (beyond RMD amounts) to bring the assets below the formula-based benefit; thus the owner can waive upon termination.  Hopefully, interest rates would come down next year but it is a speculative bet obviously.  

[Lou S.]

Well I told them to terminate 2 years ago when there was no issue but you know how clients can be. Delaying now not an option as the business has closed. Could allocate the excess to others but 1 man shop so no one else to allocate it to.

[truphao]

sorry, I wish I were more helpful.  My clients are all ideal and behave exceptionally well.  Always communicate business changes well in advance, never dance around reasonable compenation issues and always do exactly what I tell them to do.   Never inadvertently buy life insurance within the plan nor ever invest in limited partnesrships or collectible art.   Aggrrhhhhh.