I am somewhat confused as to the calculation of the maximum allowable lump sum under IRC 415 for NRAs prior to age 62. Assuming that the plan's actuarial equivalence post-NRA is 5%, 94 GAR. Is 1 or 2 below the correct method?

1. Convert age 62 415 maximum dollar limit ($165,000) to a lump sum using 5.5% apr, discount back to NRA using 5.5%.

2. Convert age 62 IRC 415 maximum dollar limit to a lump sum using 5.5% apr, discount back to NRA using 5%.

Generally:

1. Calculate the maximum benefit (not LS) at NRA. That is the 415 limit reduced from age 62 to NRA taking the lesser amount based on plan actuarial equivalence or 5%/94GAR.

2. Calculate the 415 maximum LS based on an immediate annuity at NRA based taking the lesser amount using 5.5%/94GAR or plan actuarial equivalence.

Note that there is a transition rule for 2004: The sponsor can use the the 30 year rate in effect on the last day of the last plan year beginning before January 1, 2004 rather than the 5.5%. I am not certain if that means, for a calendar year plan, the rate under the terms of the plan at 12/31/03 or the 12/31/03 rate.

Thanks penman. That is how I originally read the new law but I was getting conflicting opinions from others.

Just for clarification, did the new law change the interest rate used in determining the benefit where NRA is greater than 65, or do we still use the 5% max cap for conversion purposes?

Only the rate for determining the LS changed, not the rate for determining the benefit, regardless of whether NRA is before 62 or after 65.

Thanks Penman.