Chapter 7 - Benefit Limitations under IRC 415

  1. Average Compensation
    Compensation averaged over the highest three consecutive years.
  2. Cost-of-living adjustment
    Indexed increase of $5,000 increments.
  3. Limitation Year
    Dollar and percentage limits apply to the plan's limitation year, which is the calendar year, unless the employer adopts some other twelve month period by written resolution usually in conjunction with the adoption of the plan.
  4. Percentage Limit
    • 100% of the participant's average compensation.
    • Compensation is averaged over the highest three consecutive calendar years.
    • The IRC 401(a)(17) maximum compensation limit of $250,000 as indexed for cost-of-living adjustments through 2012 applies to a plan's accrual formula, as well as to the IRC 415 100% of average compensation limit.
    • If the employer never maintained a defined contribution plan in which the employee has participated, a $10,000 de minimis annual benefit can be provided, regardless of compensation.
  5. Maximum Annual Retirement Benefit
    IRC 415(b)(1), the maximum annual retirement benefit that a defined benefit plan may provide.  It is the lesser of the dollar limit OR the percentage limit.
  6. Dollar Limit
    A dollar limit of $160,000 that is indexed by a cost-of-living adjustment in $5,000 increments. For years ending beginning in 2012, the dollar limit has increased to $200,000.
  7. Qualified Joint and Survivor Annuity (QJSA)
    • The QJSA is a form of retirement annuity to a participant that also provides a benefit to the surviving spouse of the participant upon the participant's death after retirement. 
    • The QJSA must be defined by a plan to be a level annuity for the life of the participant with a survivor benefit that is not less than 50% nor more than 100% of the benefit that is payable to the participant.
Card Set
Chapter 7 - Benefit Limitations under IRC 415
Benefit Limitations under IRC 415