Assume for a moment I have statistics to prove a 58 or 55 retirement age is "reasonable"...

How do you calculate the Max 415 pension at say 58 or dare I say 55?

My plan uses for actuarial equivalence....

5.5 Pre (no mortality)
5% Post 83 GAM



Thanks in advance!

Max monthly benefit at 58 = (195k/12) x (APR62/APR58) / (1.055^4), where APRs are based on 83GAM, 5%.

A second calc should be done based on the current 417e mortality table and 5% interest.

The 415 limit is the lesser of the two results. I'm pretty sure it would be the first one.

... Scott

Maybe. If NRA is 62 or greater, I agree.
If NRA is 55, then the benefit is discounted at 5.0%, because that is the rate applicable to the post-retirement period.

If a lump sum is to be paid, then the 417(e) mortality and 5.5% is used to cap the lump sum amount.

This question raises the peripheral question: Suppose plan specifies actuarial equivalence as pre-retirement 6.00% and no mortality and post as 1983GAM and 5.00%. Forget about 415. Suppose plan says that NRA is 65 but can retire early at 55. How do you calculate reduction at 55?

(a) a65(5%)/1.05^10/a55(5%)

(b) a65(5%)/1.06^10/a55(6%)

(c) a65/(5%)/1.06^10/a55(5%)

My vote has always been (c). Breaking the calculation into two pieces, we'd first ask, what is the present value of the pension. Ans: a65(5%)/1.06^10. Now, to convert this present value to an immediate pension, we would divide by a55(5%).

Any other arguments?

(Thanks to Mike Preston for his editing.)

How about a comment or two:

1) peripheral

2) ^10

Other than that, it is still an open question as to whether the pre-retirement interest rate or the post-retirement interest rate should be used in discounting from retirement age to early retirement age when dealing solely with actuarial equivalence.

I would say (b) is silly because you are using 6% in a post-retirement sense and nothing in your description would allow that.

Which leaves us with (a) versus (c) and I think that most with go with (c). I certainly do. However, I've seen some that argue (a) and with a contemporaneous SPD that gives an example that matches up to (a) I don't think a participant would be successful challenging it. But, I suppose, one never knows.

As far as the rest of this thread goes, there is a lot of information missing in order to do a proper calculation: compensation history; years of participation; actuarial equivalence and 415 factors as of the transition date with respect to the 415 regulations (typically 12/31/2007); retirement age under the plan; early retirement factors under the plan (if different from the actuarial equivalence factors).

Thank you for correcting my (a) sloppyness (b) slopiness (c) slop. I have edited the post to reflect your corrections.