The parameters of the U.S. 415(b) Maximum Benefit Limit dialog box, accessed by clicking the U.S. Maximum Benefits button of the Regulatory Data topic, allow you to change some of the valuation assumptions used to adjust the Internal Revenue Code (IRC) Section 415 dollar limit. You may also change the methodology for the 100% of compensation limit and you may “turn on” the $10,000 benefit exemption. For details about ProVal’s methodology for calculating the 415(b) limit, see our Technical Reference article entitled “U.S. Internal Revenue Code Section 415 limits“.

The selections for parameters of the U.S. 415(b) Maximum Benefit Limit dialog box of the Regulatory Data topic will be reflected in a Benefit Definition only if:

1. the Apply 415(b) maximum benefit limit box of the Benefit Definition is checked (available in the U.S. qualified and U.S. public modes); or

2. the #MAXBEN operator is referenced by the pension Benefit formula or OPEB mode Benefit formulas (whichever applies).

Most of the parameters relates to application of one of three elements in ProVal’s calculation of the section 415 maximum benefit limit: the dollar limitation, the average salary limitation and the small benefits exemption. These parameters are discussed in the appropriate section below.

Dollar limitation:

Interest rate before age 62 specifies the interest rate used for ages under 62 to apply actuarial equivalence to reduce the dollar limit for commencement of benefit payments before age 62. Enter the rate as a number between 0.05 and 0.25 (not as a percentage).

Interest rate after age 65 (if the Apply 2001 Tax Act actuarial equivalence and rounding provisions box of the Regulatory Data dialog box is checked) or Interest rate after SSNRA, that is, after social security normal retirement age, (if the Apply 2001 Tax Act actuarial equivalence and rounding provisions box is not checked) specifies the interest rate used after age 65 or social security normal retirement age, respectively, to apply actuarial equivalence to increase the dollar limit for late (i.e., after social security normal retirement age under pre-EGTRRA law or after age 65 under EGTRRA) commencement of benefit payments. Enter the rate as a number between 0 and 0.10 (not as a percentage).

Mortality table specifies the mortality discount, if any, used to apply actuarial equivalence before age 62 or after either social security normal retirement age (under pre-EGTRRA law) or age 65 (under EGTRRA) to reduce or increase the dollar limit for early or late benefit commencement, respectively. Select from the list of mortality rate reference tables (other than generational mortality tables) in the current Project or click the button to create a new table or edit an existing one.

Checking the Apply mortality discount in actuarial reductions & increases box specifies that actuarial equivalence will reflect mortality before age 62 and after either social security normal retirement age (under pre-EGTRRA law) or age 65 (under EGTRRA). If there is no risk of benefit forfeiture on account of death prior to commencement of benefit payments, it may be permissible to ignore mortality before age 62 (which would result in a larger dollar limit as of the early retirement age). If there is no risk of benefit forfeiture on account of death after social security normal retirement age (pre-EGTRRA law) or age 65 (EGTRRA), it is generally not permissible to reflect mortality after that age (reflecting mortality would result in a larger dollar limit as of the late retirement age). Note that the annuity conversion factors in the actuarial equivalence calculations reflect both mortality and interest, but if a mortality discount is not applied then, in those calculations, 1) the discount from age 62 to the early retirement age or 2) the increase from social security normal retirement age or age 65 to the late retirement age reflects only interest.

Checking the Apply actuarial increases after age 65 box (if the Apply 2001 Tax Act actuarial equivalence and rounding provisions box of the Regulatory Data dialog box is checked) or the Apply actuarial increases after SSNRA box (if the Apply 2001 Tax Act actuarial equivalence and rounding provisions box is not checked) specifies that the dollar limitation will be increased for commencement of benefit payments after age 65 or social security normal retirement age, respectively. Depending upon plan provisions regarding whether and how benefit payments are increased for late retirement, an actuarial increase in the dollar limit may be permitted, required or prohibited.

Checking the Do not reduce for death and disability benefits before age 62 will not reduce the dollar limitation for death and disability benefits commencing prior to age 62.

Checking the Do not reduce before age 62 if 15 years of participation service will not reduce the dollar limitation before age 62 if the participant has attained 15 years of participation service.

The Payment frequency for actuarial reduction & increase factors parameter allows you to choose either

• Annual (beginning of year) annuity factors, that is, annual payment frequency with payments at the beginning of each year, or

• the Plan’s benefit payment frequency and timing, as specified under the Plan Attributes topic of the Plan Definition,

for calculation of annuity factors used to determine 1) the actuarial reduction factor applicable to the Section 415 maximum benefit limit for benefit payments commencing before age 62 or 2) the actuarial increase factor applicable to the limit after age 65 (if the Apply 2001 Tax Act actuarial equivalence and rounding provisions box of the Regulatory Data dialog box is checked) or after social security normal retirement age (if the Apply 2001 Tax Act actuarial equivalence and rounding provisions box is not checked). Examples provided in IRS Regulations (see, for instance, Regulation 1.415(b)-1(d)(7), example 1, part ii) appear to correspond to the use of the plan’s benefit payment frequency and timing of benefit payments (therefore this is the default setting for a new set of Valuation Assumptions).

The Participation service based on parameter determines how to measure years of plan participation for reduction of the dollar limit for participation service of less than 10 years. (Note that, in general, this service excludes any years prior to the effective date of the plan or prior to a participant’s entry into the plan.) You may specify either a database Field or a Service Definition. If you specify a Field, you may refer to a participation date or to a numeric field containing participation (service while a plan participant) as of the valuation date. Select the desired field from among the numeric and date fields unhidden in the current Project or, if you need fractional accumulation of participation (e.g., hours-related service) or rounding (e.g., completed years), select from the library of Service Definitions. The button accesses the library to create and modify Service Definitions.

Service is anticipated to increase by one year per calendar year, or, if you have specified a Service Definition, service is anticipated to increase according to the Service accruals parameter of the Service Definition.

 

Highest 3-year average salary limitation:

Valuation salary (from Census Specifications) indicates that the 100% of salary limit is based on the Salary Definition contained in the Census Specifications. Alternative salary indicates a different Salary Definition. Based on the selected Salary Definition, ProVal computes the limit as the average compensation for the 3 consecutive calendar years of service (plan participation in ProVal versions 2.17 through 2.21) with the greatest aggregate compensation; if a member has fewer than 3 years of service (or participation), ProVal averages over the (one or two) available years. Note that if the Salary Definition does not include historical salaries all the way back to the plan year in which the hire (or participation) date falls, then ProVal “fills in” by projecting backward according to the salary scale indicated under the Salary Increases topic.

Because ProVal divides the total 3-year salary by a whole number of years to get the average salary, annualized salary is needed to calculate the salary limit. Thus a need for an alternative Salary Definition could arise if, for example, the salary history in the valuation salary definition includes instead, for the plan year in which the hire (or participation) date falls, actual salary for the period from the hire (or participation) date to the end of the plan year.

Select an Alternative salary from the list of Salary Definitions in the current Project, or click the button to access the Salary Definition library and create a new entry or edit an existing one.

Note that if either the Valuation salary option or the Alternative salary option is used, ProVal automatically limits the historical and projected salaries included in the 3-year average salary to the §401(a)(17) maximum compensation amount.

Check the Not applicable box to “turn off” calculation of the salary limit (but not the dollar limit). Typically, this option is used for plans exempt from the salary limit, such as multiemployer plans under EGTRRA, or if salary data is not furnished.

 

Small benefit limitation:

Checking the Apply $10,000 exemption box tells ProVal to allow annual benefits of $10,000 or less, regardless of what the dollar limit or salary limit would otherwise be. (For purposes of applying this exemption, the dollar limit is not adjusted either for commencement age of benefit payments or for the form under which benefits are payable.) Note that this option might not be allowed if the plan sponsor has ever maintained a defined contribution plan.

Applicable to all three parameters:

Checking the Do not prorate limitations for service of less than 10 years for death and disability benefits will not apply the service prorations to each of the three limitations for death and disability benefits.