S1.415(a)-1(g)(4) grandfathers the benefits accrued as of the end of limitation year that is immediately prior to the effective date of the regs. So for a calendar year limitation year the benefit accrued @ 12/31/06 would be preserved.

An employee's monthly accrued benefit under the plan @ 12/31/06 is $8k (100% of 401(a)(17) Hi 3) and his S415 Hi 3 is $10k (which is less than the $Max).

PV of $8k using the plan assumptions is 1.3 million and PV of $10k (S415 Hi 3) using the S415 assumptions is 1.5 million. So he could have been paid 1.5 mil.

Absent the grandfather rule, under the new regs, the S415 Hi 3 benefit will now be $8k with a PV of $1.2 mil.

Assuming the employee's average comp remains unchanged in the future, under the grandfather rule, is the S415 maximum payout equal to:

PV of $8k using the plan assumptions or the PV of old Hi 3 of $10k using the plan assumptions?

The regulations are effective 1/01/08 for a plan with a calendar year limitation year that was in existence on 4/5/2007. The benefit that is grandfathered is the 12/31/2007 benefit based on the plan as written 4/5/2007. So its the 2007 benefit thats grandfathered not the 2006. The IRS has been clear on this point in several conferences.

The benefit that is grandfathered is the actual accrued benefit at 12/31/2007...not the 415 limit. Since he had not accrued the 10K benefit the grandfathered benefit will be 8K.

I take from your post that the plan's assumptions are more generous than the 415 asumptions. I believe that as long as the greater lump sum was in accordance with the plan provisions and satisfied the pre-reg 415 limit, that optional form amount based on the 4/5/07 plan provision is also grandfathered,

It will have to be monitored as time passes to make sure that actuarial increases post NRD and other plan level adjustments do not push the optional form to a greater amount than would have been payable under the 2007 415 limit, without regard to post 2007 COLAs and post 2007 pay

Yes, the effective date is 04/05/07 and per 1.415(a)-1(g) and the reqs apply to the limitation years beginning on or after 07/01/07 which for calendar year will be, as you say, 01/01/08.

But per 1.415(a)-1(g)(4) the grandfathered benefit is "..... the benefit accrued as of end of the limitation year that is immediately prior to the effective date of final regs under this section .....

The effective date of final regs is 014/05/07, so for the calendar year limitation year, isn't 2006 the limitation year ending immediately prior to 04/05/07?

No...both Jim and Marty have been very clear on this. The effective date for a calendar year plan is 1/01/08. They have both said that you get to continue to accrue through 12/31/07 on the basis of the 4/5/07 documenmt and that 12/31/2007 benefit is the grandfathered benefit

In essence IRS reads "effective date" to be "effective date with respect to the plan". So "end of the limitation year that is immediately prior to the effective date of final regs under this section ..... " is end of the LY immediately prior to 1/1/2008...which is 12/31/2007

Just want to make sure I am not missing anything.

Since the new regs are effective 01/01/08 for calendar year plans, lump sum equivalent of deminimis can be paid out in 2007 even if the participant's Hi 3 is less than the deminimis benefit.

That would be an extremely aggressive position. The IRS has always maintained the same position on deminimus benefits as is now stated in the final regs.

Is their position set out in any regs, revenue rulings etc? In my experience, hitherto, the practice in the industry has been that the lump equivalent of deminimis, where Hi 3 was less than the deminimis, was OK.

I don't want to take an aggressive position and that's why I am being cautious. But at the same time I don't want to short-change the client. Also, the S415 issues involving excess assets invariably get scrutiny of second or third opinions. So I don't want the client to come back and say that my advise was bogus because another actuary said that it was Ok. That doesn't necessarily mean the other actuary is right but I better have some cite to backup my position.

I'm not aware of any Rev. Rulings or Regs to support the IRS position on this. I've always just seen their prohibition and postion on no lump sums for De Minimus benefits in their audit guidelines and verbal comments.

Isn't the Code pretty clear on this? If one receives more than $10,000 in an annual period, then it is not a de minimus benefit, as that is defined. Do they really need a reg to clarify something that is already unambiguous?

I agree with Mike & PAX. $10K deminimus is an annual benefit. The lump sum equivelant of it is not part of the deminimus.

Obviously code is not clear! Why else would they devote a separate section on it in the revised S415 regs? The language in the code has not changed since the original regs, has it?

The language on the annual deminimis benefit limit is no different than the annual 100% hi 3 limit or the $Max limit and therefore lump sum equivalent of $max or 100% Hi 3 should not be available!