415(b) Limits - General Questions

I have a situation where a participant's lump sum is being limited by the 415(b) limit. I.e. 5.5% and 2020 mortality LS factor with their high 3 compensation. This is limiting the lump sum as the plan is fairly rich (1.6% FAE 5 of 10) and the participant has 45 years of service (no cap, very generous). It's unfortunate, as the participant is not a high earner (approx 45k FAE) and it feels like the limit is impacting a participant it was not intended to target. I am wondering if there is any exceptions (other than ME, collectively bargained, church/gov't plans) that might allow this participant to receive their full LS?

One item I cannot find clear direction on, the plan was contributory long ago and the value of the participants contributions with interest is higher than the amount that the lump sum is being limited. (Their 415 max LS plus ee contributions is greater than the unrestricted LS). I would think that the 415 limits were intended to apply to the employer portion only?

Additionally, the plan offers split benefits (LA and LS) in 10% increments. I also thought perhaps they could take 10% as an annuity to reduce the LS below the limit, but the 90% LS the Administrator is showing is 90% of the restricted (415 limited) lump sum. Is there anything I'm not thinking of "creatively" on this? Is the participant truly just out of luck on their total benefit (if desire is to take as LS)?

Sorry for the ramble, thanks in advance!

How old is the person..please show your math as well..

10 hours ago, IowaActuary said:

One item I cannot find clear direction on, the plan was contributory long ago and the value of the participants contributions with interest is higher than the amount that the lump sum is being limited. (Their 415 max LS plus ee contributions is greater than the unrestricted LS). I would think that the 415 limits were intended to apply to the employer portion only?

The portion of the accrued benefit derived from employee contributions is not subject to 415(b). The employee contributions are considered annual additions subject to the DC limits. 1.415(c)-1(a)(2)(ii)(B) and (b)(3).

1 hour ago, draper1 said:

How old is the person..please show your math as well..

They are 62 currently, looking to take lump sum prior to 63. (July 2020) No age adjustments for limitation purposes.

Plan AB: 38,849 (annual)
Plan LS Factor: 15.8413 (given the participant has participated for 45 years, it's a combination of 3 different periods of employment with all AE compared to PPA). This is an age 63 factor.

Plan LS (unlimited): 615,419

Final Average Earnings (3 year per 415): 47,327

415 LS Factor (5.5% and PPA2020 for 7/1/20 commencement): 12.5614

415 Limited Lump Sum: 594,494

It is targeting a participant that was perfectly intended.  Your actuarial equivalence factor is more than 25% more generous than the statutory factor. But you have a bigger problem. How do you comply with 411 when the limit was also applied to the age 62 lump sum?