In the IRS Announcement for the pension plan limitations for 2005, the 415(b) limit is stated as follows:

"Effective January 1, 2005, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) is increased from $165,000 to $170,000. For participants who separated from service before January 1, 2005, the limitation for defined benefit plans under section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2004, by 1.0273."

Can someone clarify the limitation as defined under 415(b)(1)(B) or point me to any published guidance. Does this mean that someone who separated service, say, in 1995 but retires in 2005 cannot be tested under the $170,000 dollar limitation for 2005? Rather, his limitation is the dollar limitation as of 1995 increased by the adjustment factors over a 10-year period?

415(b)(1)(B) limits a DB participant's benefit to their highest 3 consecutive years of compensation. The 1.0273 factor means that a retiree/terminee can have their Hi-3 increased by that amount if the plan allows. For example:

A person retires in 2004 and receives a benefit equal to is Hi-3. In 2005 he would now be able to receive his Hi-3 multiplied by 1.0273.

The dollar limit of $170,000 is a different limitation unaffected by this adjustment.