FAQ 1023: 415 Maximum Lump Sum

Problem: How is the 415 Maximum Lump Sum value calculated in the Participant Termination/Optional Forms program?

Solution: If Recalculation Options - Present Values is set to Do Not Recalculate, the 415 Immediate Lump Sum Benefit stored in the participant's Costs \ LIABILITY screen is reported. If Recalculation Options - Present Values is not set to Do Not Recalculate, the participant's 415 maximum annuity benefit is calculated, and then, the 415 maximum lump sum factor on the participant's age in completed months is applied to that benefit. Both calculations are done as of the Calculation Date. The 415 maximum annuity benefit is the lesser of a) the 415 $ Limit, and b) the 415 % of Compensation Limit. Additional descriptions of a) and b) are as follows: a) The 415 $ Limit benefit is the statutory maximum benefit from age 62 to age 65, multiplied by an Adjustment Factor considering the lesser of actuarial equivalence or statutory factors, for retirement ages pre-62 or post-65. It is prorated for Valuation Date Participation less than 10 years on the Calculation Date . b) The maximum 415 % of compensation limit is the participant's Maximum Average Compensation on the Calculation Date, prorated for Valuation Date Service less than 10 years on the Calculation Date. The 415 maximum lump sum is equal to the lesser of the 415 $ Limit, adjusted for the participant's age on the Calculation Date in completed months or the 415 % of Compensation Limit, multiplied by the lesser of the plan's actuarial equivalence factor and the Statutory 5.5%/AMT factor. Note that the 417(e)(3) Applies to Lump Sums option on the Assumptions \ MAXBNADJ screen codes the system to compare the factor using 417(e)(3) assumptions to the actuarial equivalence factor during valuation calculations. This option is not considered in the Participant Termination Optional Forms program. For additional details regarding the calculation of the 415 Limit and Maximum Lump Sum, refer to the 415 Calculations for DB webcast. Handouts and the recorded webcast are available in the Client Support Center > System Training > Web Seminars webpage with Defined Benefit selected in the dropdown menu. Details regarding the calculations in the Participant Termination / Optional Forms program are included in topic #8. EXAMPLE: CALCULATION DATE 12/31/2022 PLAN DATA Valuation Date: 12/31/2022 AEQ Pre & Post-Retirement Interest: 5.5% AEQ Post-Retirement Mortality: RP22C U 415 Maximum Benefit 62 to 65: 20,416.66 415 Post-Retirement Mortality: RP22C U PARTICIPANT DATA AA in Completed Months: 36y,10m NRA: 65 Valuation Date Service (YOS): 9 Valuation Date Participation (YOP): 3 415 Maximum Benefit - Annual Average Compensation: 3,085.36 APPLICABLE FACTORS AEQ 62y,0m:154.336 AEQ 36y,10m: 203.892 Statutory 5.0% 62y,0m: 161.833 Statutory 5.0% 36y,10m: 218.846 Statutory 5.5% 36y,10m: 203.892 CALCULATION OF PRORATED 415 % OF COMPENSATION LIMIT = Maximum Average Compensation x YOS (max of 10) / 10 = 3,085.36 x 9/10= 2,776.82 CALCULATION OF PRORATED 415 $ LIMIT = Maximum Benefit 62 to 65 x YOP (max of 10) / 10 = 20,416.66 x 3/10= 6,125.00 CALCULATION OF 415 $ LIMIT PRE-62 ADJUSTMENT FACTOR = Minimum a) and b) a) AEQ APR 62y,0m / (1 + AEQ i)^(62 - 36y,10m) / AEQ 36y,10m = 154.336 / 1.055^(62 - 36y,10m) / 203.892 = 0.19673 b) Statutory APR 62y,0m / (1.05)^(62 - 36y,10m) / Statutory APR 36y,10m = 161.833 / 1.05^(62 - 36y,10m) / 218.846 = 0.21660 Minimum of a) and b) = 0.19673 CALCULATION OF 415 IMMEDIATE ANNUITY BENEFIT = Minimum of a) and b) a) Prorated 415 % of Compensation Limit = 2,776.82 b) Prorated 415 $ Limit with pre-62 Adjustment = 6,125.00 x 0.19673 = 1,205.00 Minimum of a) and b) = 1,205.00 CALCULATION OF 415 IMMEDIATE LUMP SUM BENEFIT = 415 Immediate Annuity Benefit x Minimum a) and b) a) AEQ AA APR - Completed Months = 203.892 b) Statutory 5.5% APR - Completed Months = 203.892 = 1,205.00 x 203.892 = 245,689