A defense attorney works on-call for the State of MN. He participates in a State sponsored collectively bargained defined benefit plan. His benefit is based on his State income of $58,000.00.

This attorney also has a private practice. His salary is $150,000.00 from this practice(total annual income $208,000.00). He wants to establish a defined benefit plan for this private business.

What would the limitations on his benefit be if this attorney participated in both the State plan and his private plan?

Would his benefit in the private plan be based on $208,000.00?

I would say 150,000. His "practice" is not employed by the state, he personally is. If his practice were hired by the state, he would not be eligible to participate in their plan.

Therefore, he only has 150,000 of income from his practice.

Note that there would be no coordination between the benefits for applying Section 415 (i.e., ignore the state plan).

Thank you for the advice. I have had very little exposure to state plans and the information you have provided me has helped a great deal.

The amount of compensation used to compute the benefit for his Law practice plan will be his schedule C income, e.g., net earnings from self employment. Sked C income is his gross income reduced by expenses. The income he earns from his state job is used to compute the benefit under the state DB plan formula. The benefits from each of the plans are not aggregated for the purposes of the 415 limits.

Thank you for the clarification Mbozek.

Would someone please provide me with the precise 415 citation stating that the benefits from each of the DB plans do not have to be aggregated for the purposes of the 415 limits?

I don't think 415 states precisely what you are asking for.

However, 415(f)(1)(A) uses the terms "plans...of an employer" [emphasis mine]. Also 415(g) uses the language "maintained by the same employer".

If I'm not mistaken, this is a distinction from two plans maintained by two separate employers that are not members of a controlled group.

No cite, that involves work. Anyway, unlike the 402(g) limit, which is individual, the 415 limits for DB or DC plans are employer limits. In the example, the state plan and the law firm plan are not related employers, therefore separate limits apply. Now, if they were related employers, then one limit would apply.

Barry,
Blinky and WDIK are correct, the code sections supporting the conclusion are not reduced to any one citation.

See IRC 414(b) and © which require the aggregation of benefits under all plans of employers who are members of the same controlled group. Therefore there is no aggregation of DB or DC benefits of employers who are not in the same controlled group.

As a clarification to the preceding post from mbozek. Note that for 415 limitation purposes, the common control test for aggregating plans is reduced to a more than 50% common ownership. So, situations that are not considered a controlled group for other purposes could be required to be aggregated for 415 limitation purposes. See IRC section 415(h).

That is only specific to parent/subsidiary relationships, not brother/sister