Compensation Limits in Defined Benefit Plans (Posted October 8, 2002) Technical Tip 82: The following question and answer were from the IRS Q&A Session at the 2000 ASPPA Annual Conference: Is the 100% of high 3 pay IRC 415(b)(1)(B) limit subject to IRC 401(a)(17) pay cap? Response: No, unless plan drafted otherwise. Comment by RLR&C ERISA Attorneys: It is useful to remember that the100% of compensation limit is a Code section 415 limit, rather than a limit under Code section 401(a)(17). Therefore, a plan could fund for an annual benefit of $250,000 for a participant whose highest 3 consecutive year average compensation is $250,000 provided (1) the $250,000 is not in excess of the maximum dollar limit under Code section 415(b)(1)(A) and (2) the benefit formula does not limit benefits to 100% of 401(a)(17) compensation. For example, the benefit formula could be "100% of 415 Compensation", or perhaps, "the maximum allowable benefit under Code section 415(b)(1)(A)". These may not be safe-harbor formulas; therefore they would have to be shown to be nondiscriminatory under Code section 401(a)(4). A safe-harbor benefit formula might be "20% of 401(a)(17) compensation for each year of participation". View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.