The parameters of the U.S. 415(b) Maximum Benefit Limit dialog box allow you to change some of the assumptions used to adjust the 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 ProAdmin’s methodology for calculating the 415(b) limit, see our Technical Reference article entitled “U.S. Internal Revenue Code Section 415 limits“.

Note that this dialog box does not adjust the dollar limit for payment under a form of benefit other than a life annuity (or qualified joint and survivor, or pre-retirement survivor, annuity). That adjustment must be coded into the Benefit Formula if required.

Note also that 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 Maximum Pension topic of the Benefit Definition indicates that the U.S. 415(b) limit should be applied; or

2. the #MAXBEN operator is referenced in the Benefit Formula.

The U.S. maximum benefit parameters are:

Dollar Limitation:

Interest rate before age 62 specifies the interest rate used to reduce the limit for commencement prior to age 62. Enter the interest rate as a decimal (e.g., 0.05).

Interest rate after age 65 (or the Interest Rate after SSNRA (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 to increase the limit for commencement after age 65 (or after Social Security normal retirement age if pre-EGTRRA law) to apply actuarial equivalence to increase the dollar limit for late commencement of benefit payments. Enter the interest rate as a decimal (e.g., 0.05).

Mortality table specifies the mortality discount, if any, used to apply actuarial equivalence under 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.  

Checking the Use the current applicable mortality for 417(e) checkbox will automatically switch to use the appropriate mortality table for initial calculation dates starting 1/1/2008 and later.  This option is only available if one of the dynamic IRS applicable mortality tables for 417(e) is selected (excluding zero pre-commencement tables).   

Checking the Apply mortality discount in actuarial reductions & increases checkbox specifies that actuarial equivalence will reflect mortality under 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 under 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 (which 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 the discount in those calculations from age 62 to the early retirement age, or the increase from social security normal retirement age or age 65 to the late retirement age, reflects only interest when a mortality discount is not applied.

Checking Apply actuarial increases after age 65 (or Apply actuarial increases after S. S. normal retirement age 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 social security normal retirement age or age 65, 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 either permissible, required or prohibited.

Checking 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. This is appropriate for certain government plans.

Checking 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. This is appropriate for police & firefighter plans.

The Payment frequency for actuarial reduction & increase factors parameter allows you to choose either annual (beginning of year) annuity factors or the plan’s benefit payment frequency and timing (as specified under the Plan Definition | Plan Attributes | Miscellaneous Parameters topic) in the calculation the annuity factors to be used in the determination of the actuarial reduction and increase factors applicable for Section 415 benefit maximums payable before age 62 or after Social Security Normal Retirement Age. Examples provided in IRS regulations (see for instance 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, so therefore, this is the default.

Participation service based on Service Definition Set selects the Service Definition Set from the library that determines participation service for prorating the dollar limit. In general, this should not include any years prior to the effective date of the plan or prior to entry into the plan. If <Base Service Set> is selected, the <Base Service Set> Definition specified in Census Specifications will be used. The edit button allows you to edit an existing Service Definition Set or create a new entry.

The Limitation year parameter allows you to choose either the calendar year or the plan year as the limitation year. For example, if the plan year begins in March but the limitation year is the calendar year, the dollar limits for the calculations at all dates will be the same as if the plan year was the calendar year.

The Cost-of-living increases cease at parameter allows you to stop applying increases to the 415(b) dollar limit at commencement, decrement (severance), calendar year, or earlier of decrement and calendar year. The default is decrement, consistent with IRC §1.415(a)-1(d)(3)(v)(C), If one of the calendar year options are selected (typically reflecting a plan freeze date), the box below becomes available for you to  enter either the single calendar year for the plan or a Plan Constant if the year varies among participants.

The Applicable interest rate for lump sum conversion is used when one or more Benefit Definitions apply the U.S. 415(b) maximum pension limit and have been checked to Adjust limit for lump sum payment forms. Select the applicable table from the Interest Rate Tables library. If the interest rates are determined based on the PPA rules to phase in from GATT interest rates to PPA spot interest rates between the 2008 and 2012 plan years, select the applicable GATT interest rate table under the Apply PPA phase-in from this GATT Interest Rate Table multi-choice field. The edit buttons allow you to edit an existing Interest Rate Table or create a new entry.

Highest 3-year average salary limitation:

<Base Salary Set> (from Census Specifications) indicates that the 100% of salary limit is based on the <Base Salary Set> Definition specified in the Census Specifications. Alternative Salary Definition Set indicates a different Salary Definition Set. Based on the selected Salary Definition Set, ProAdmin computes the limit as the average compensation for the 3 consecutive years of service with the greatest aggregate compensation; if a member has fewer than 3 years of service (or participation), ProAdmin averages over the available years.

Note that when using either the <Base Salary Set> or an Alternative Salary Definition Set, ProAdmin will automatically limit the historical and projected salaries included in the 3-year average salary to the §401(a)(17) maximum compensation amount.

Check Not applicable 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 multi-employer plans under EGTRRA, or if salary data is not furnished.

 

Small Benefits

Checking Apply $10,000 exemption tells ProAdmin 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 Do not prorate limitations for service of less than 10 years for death and disability benefits will cause the proration for service less than 10 years to not be applied to each of the three limitations for death and disability benefits.