9
percent of the participant's average compensation for his 3
highest paid years with the plan sponsor. For the years at
issue, section 415(b)(5) reduced the subsection (b)(1) dollar
limitation as follows:
(5) Reduction for service less than 10 years.--
In the case of an employee who has less than 10 years
of service with the employer, the limitation referred
to in paragraph (1) * * * shall be the limitation
determined under such paragraph * * * multiplied by a
fraction, the numerator of which is the number of years
(or part thereof) of service with the employer and the
denominator of which is 10.
Thus, a qualified defined benefit pension plan may not provide
for payment of benefits in excess of the dollar limitation of
section 415(b)(1) as further limited by section 415(b)(5).6
In Citrus Valley, we held that section 404(j)(1) limits
deductible contributions to the amount necessary to fund the
benefits payable under section 415 determined at the time of the
contribution in question. Citrus Valley Estates, Inc. v.
Commissioner, 99 T.C. at 447. The dispute in these cases focuses
on the amounts of benefits payable under section 415 determined
at the time of the contributions in question. Specifically, at
issue is whether Pallin's and Brody's prior employment with
entities other than the plans' sponsors constitutes "service with
the employer" as that term is used in section 415(b)(5).
6 For plan years beginning after Dec. 31, 1986, sec. 415(b)(5)
was amended to restrict the sec. 415(b)(1) dollar limitation for
participants with less than 10 years of participation in the
plan. See Tax Reform Act of 1986, Pub. L. 99-514, sec. 1106, 100
Stat. 2085, 2424.
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