Say a 1 HCE participant plan is a 412i plan with 50% of total premium for annuity policy and 50% for life policy.

Say the participant has average compensation at the 415 limit of 180k and NRA is 62 and he will have 10 years of part at NRA.

Therefore his 415 limit benefit is 180k.

Lets say that the 415 lump sum at 62 based on benefit of 180k is $2,000,000.

Now let's say the cash values reach $2 million by age 60.

Even if the plan is frozen and no further premiums are made and the plan is converted to a traditional 412 plan, the cash values will still continue to increase by age 62, thus causing a surplus and excise taxes.

So the point and question is: Once the 415 lump sum is reached, how can you avoid a surplus situation?

Terminating the plan and distributing $2 million at age 60 would likely be in excess of the 415 lump sum limit (or at least let's assume that it is for this question).

Thanks.

One of the benefits offered by freezing it is that the assets will grow at only 2% or 3% for the next two years, under the terms of the insurance and annuity contracts. You can gamble that the 415 limitations will go up more than that in that short term. And, since EGTRRA is now permanent, that's not quite as dangerous a risk as it might have been. Carol Caruthers, MSPA, EA

This is one of the things the IRS is targetting, for good reason IMHO. This plan has a target on it's back.