Having great investment returns is a good thing, but sometimes investments in a DBPP are so successful that the maximum allowed benefits are exceeded. The IRS allows you to accumulate only so much in a DBPP. For example, currently, the maximum allowed DBPP amount under §415 at your specified age is as follows:
| Age | Maximum §415 Lump-Sum Benefit |
|
75 |
$2,442,100 |
|
70 |
$2,894,800 |
|
65 |
$3,299,800 |
|
62 |
$3,519,100 |
|
60 |
$3,184,800 |
|
55 |
$2,482,000 |
|
50 |
$1,935,000 |
|
45 |
$1,509,200 |
|
40 |
$1,177,700 |
Normally, a DBPP is terminated just before the plan assets reach these amounts, with the lump-sum benefit rolled over to a defined contribution type of plan, such as a profit sharing plan with §401(k) provisions, or to an IRA. Any excess overfunding in a DBPP is subject to income tax if there is a "reversion" of the overfunding to the employer, plus a 50% excise tax on the amount of the overfunding reversion. In California, that's 80%! Obviously, having a reversion is not a good result. If you are fortunate enough to have an overfunded DBPP, we can help you mitigate these onerous reversion taxes.
The foregoing §415 limits do not apply to a defined contribution plan such as a profit sharing or §401(k) plan which can grow to unlimited amounts.
