Cash Balance 415 lump sum distribution limit help

[Julian]

Some of you help those xls and please help me calculate these 2 owners participants max lump sum distribution limit with most liberal plan.  These owners has the plan invested in the stock market so they have extreme excess so they want max limit and they can change the plan language to whatever you like as long as it's legal.

[1]  Date of birth 10/3/1973, employment starts 5/1/2018, plan start 2021 and plan end 2026, W-2 $140,000, interest rate 4%.

[2]  Date of birth 3/29/1974, employment starts 5/1/2014, plan start 2021 and plan end 2026, W-2 $265,000, interest rate 4%.

If you can share the xls with me, that's super.

Thanks in advance

--Julian

[Bill Presson]

People here are very helpful, but I don’t think anyone will do this calculation without ALL the information nor for free. 
 

You or the client need to hire an actuary to do this properly. If you’re not happy with the one you have now, find another. 
 

Don’t try to do this on the cheap. 

[truphao]

9 hours ago, Bill Presson said:

Don’t try to do this on the cheap. 

"Buy cheap, buy twice."  Only in this case it will be much more than twice in 2026.

[Julian]

I have access to "EAC Tools".  Can someone hint which Sheet / Tables / Function should I use?

[truphao]

dependent on the actual plan design you potentially need to calculate various factors for each person at attained age at termination, normal retirement age, age 62.  That is using 5.50%. 5.0% and 417(e) rates.   Btw, you need to watch out not to exceed 415 limites along the way for 2024 (if applicable) and 2026.  Varous proration rules applied to dollar-based limit and compensation-based limit.  The precise guidance in the IRC Section 415(b) and the final 415 regulations.  GL.

 

[david rigby]

1.  Does a plan exist or is this hypothetical?

2.  What does "have extreme excess" mean?

3.  What is the relationship between the original poster and the plan and/or the plan sponsor?

[Julian]

@david rigby

1.  Yes, the plan exists and I feel that the TPA isn't calculating right

2. Suppose to be 4% return but, it is 22% over that.

3.  I'm the employer - plan sponsor.  Reading thru the plan, this is a max plan - there is exatly rooms for 4% return only - anything more than that he claims it overshot the 415 limit - that's why I like to calculate the 415 limit myself.

[Lou S.]

If you're making 22% returns that's great but it's also likely to limit your contributions and or cause you to be overfunded on a 415 basis.

Neither of the owners are at the comp limit from what you've shown so you're going to wind up with the lessor of the 3 year high comp or actuarial reduced dollar limit from age 62 to payout. 

It looks like both will have 10+ years of service but only 7 years of participation at the end of 2026. 

You should probably ask  the actuary for an analysis of the funded status with a projection to 2026 and be prepared to pay for it and come up with a strategy limiting the overfunding. That might include more conservative investments, discontinuing contributions, covering more participants (if possible), increasing owner salary to raise the limit. Thous are just a couple of things but with out access to you plan data it's really tough to give you a final answer that you want. 

But if the Plan's actuary told you the 415 payout limit is X and the plan assets of Y are greater than that, they are probably correct.

 

[Lou S.]

You can try this site, but I have not reviewed it accuracy nor its compliance with all regulations. But it on the surface it looks like it is asking for all the right variables.

https://pensionresource.website/EAMain?content=EAMain.Calcs.Proj415Lumps 

[Julian]

@Lou S.

 

Thank you very much.  That exactly what I'm looking for.   Every body comes with different numbers and here's the order of more limit:

pensionresource.com < my TPA < ChatGPT or DeepSeek

If I ask those AI to calculate without "10 year deduction" because the plan is less than 10 years but service is 10 years, the amount is much bigger because I saw some where the Acturial can waive the "10 year deduction" away because of > 10 year service.  Can you expert can confirm whether we can waive that "10 year deduction" ?

[Lou S.]

Depends what you are are talking about. Is it for funding or payout?

There is no way to waive the phase in that is defined by the Internal Revenue Code.

When you pay out the 415 100% of pay limit is phased in on service which includes all year even the ones that existed before the Plan. And base on DOH both owners will have 10+ years of service at the end of 2026. Assume you've worked enough to satisfy the Plans service accrual rules.

When you pay out the 415 dollar limit that is phased in on participation which only includes years the plan is active and at the end of 2026 it will be impossible to have more than than 7 years of participation given the plan's start date (unless you have participation from a prior DB plan but then you would also need to off set for prior payout) so you can get no more than 70% of the dollar limit. But that is payable at age 62. Since at the end of 2026 neither of you will be age 62, you'll need to actuarially reduce the figure from age 62 to payout age.

And the overall limit is the lower of those two.

Then when you convert that to a lump sum you need to use both the plan factors and the IRS factors and the lump sum is the lower of those two numbers.

And figuring this all out correctly relies on knowing the Plan's actuarial assumptions and the underlying demographic data for the participants because they can affect the calculations and cause it to be lower than the IRS absolute max which probably what CHAT GPT is spitting out.

So if you are getting 3 different numbers, the one who has the most information - your TPA - is probably the correct one.

 

[david rigby]

5 hours ago, Julian said:

Thank you very much.  That exactly what I'm looking for.   Every body comes with different numbers and here's the order of more limit:

pensionresource.com < my TPA < ChatGPT or DeepSeek

If I ask those AI to calculate without "10-year deduction" because the plan is less than 10 years, but service is 10 years, the amount is much bigger because I saw some where the Actuarial can waive the "10-year deduction" away because of > 10-year service.  Can you expert can confirm whether we can waive that "10-year deduction" ?

Why aren't you asking the actuary?  He/she can do this, probably with alternatives you have not yet considered.

[Julian]

@david rigby  Yes talking to our TPA is the goal; before talking to him, I need to educate myself so that I won't drown in the jargons that he throws at me. 

[Effen]

David didn't say talk to the "TPA", he said, talk to the "actuary".   If you aren't getting good information from the TPA, ask them to let you talk to the actuary.  If they refuse, the actuary's name and phone number will be on the Form 5500 Schedule SB.  Now, the actuary might be harder to understand than the TPA, but they would be your best source of information.