Simplification and IRC § 415

Abstract

There has been much talk of late about simplifying Subchapter D, the web of rules governing the affairs of tax-qualified pension plans. Among the targets that the simplification advocates have in their sights is section 415 of the Code. Section 415 places limits on contributions to defined contribution plans and on benefits payable from defined benefit plans. The basic idea justifying section 415 is that an employer should not be able to use the Code's qualified plan provisions to bestow tax deferral on deferred compensation in excess of the reasonable retirement needs of its employees.The simplification advocates have proposed repeal of section 415 or at least of its most supremely complex part, section 415(e), which sets combined limits for individuals who participate in both defined contribution and defined benefit plans. They argue that section 4980A, which was enacted in 1986 and which imposes a nondeductible excise tax on excessive distributions from pension plans, has rendered secion 415 limitations, or at least the section 415(e) limitation, superfluous.5 They also argue that subsection (e) is impervious to any sort of simplification efforts short of outright repeal.