I was hoping someone could help me out regarding the compensation limit when determining 415 limits for a DB plan.

The ERISA outline book says "The compensation limit is prescribed by IRC 415(b)(1)(B) and equals 100% of the participant's average annual compensation. Average annual compensation is the highest average of the participant's section 415 compensation over 3 consecutive years of service. Treas. Reg. 4.415-3(a)(3)."

My question has to do with counting the compensation in a year in which a participant terminates.

Let's say a participant has the following 415 compensation:
1/1/02 to 12/31/02: 55,000
1/1/03 to 12/31/03: 58,000
1/1/04 to 12/31/04: 62,000
1/1/05 to 10/12/05: 57,000

Would you count the 2005 compensation even though the participant terminated in that year?

Thanks for any help!

Everytime I went to math class, 57 was greater than 55.

It's probably going to be tied to whether the person had a "year of service" as defined in the plan document (including the 415 limit section). With the late-in-the-year term date you showed in your example it's likely a full-time employee would have 1000 hours (assuming that's the criteria) for a "year of service" and therefore you would count it.

Thanks pax - Looks like you didn't do so well in English class though since you evidently didn't read the entire post.

I realize that 57 is greater than 55 - but my question centers around if you would use the 2005 compensation or not.

Thanks Jay21 for "year of service" information. I'll take that information and go from there.

Ooh. Doesn't that pax guy get slappy sometimes. But at least he's not like that mean fish.

Also recall that the 100% of average compensation limitation is reduced if the participant has fewer than ten years of service.