Floor Offset 415 Limit

We administer a traditional defined benefit plan that is offset by participant's vested balances in a profit sharing plan.

Our understanding is that the 415 limit applies to the gross benefit and not the net benefit under the floor offset plan. This does not seem right but apparently an IRS examination guide indicates that the “current approach is that the limit applies to the gross benefit (i.e. prior to offset).” There was a discussion between an actuary and Jim Holland a few years back on this issue. Rev. Rul. 76-259 was often cited in the discussion. I don't believe we have seen any further guidance on this issue, has anyone else?

The actuary made some good points as to why the 415 limit should apply to the net benefit. In our case, our pre-approved document makes no reference to the 415 dollar limit applying to the benefit prior to offset.

Any comments on this?

Thanks.

I have not worked with this much, but a few years ago this came up for me and I was surprised I couldn't find guidance saying it was the net benefit. Maybe I missed something. But then when I thought more about it, I thought maybe it made sense. You'd have to have a lot of drafting to make it work, right? And absent a statutory provision specifying how this would work, would be pretty hard to know what the rules ought to be.

I am not aware of any new guidance except the ones already mentioned, IRS examination guide and the discussion:

https://www.asppa.org/News/Article/ArticleID/5037

https://www.irs.gov/pub/irs-tege/2013cpe_db-floor-offset-arrangements.pdf

I read up on floor offsets quite a bit last year. 415 applies to the gross benefit. I think this probably does make sense if you look at it this way: Let's say that the DC assets completely tanked and became almost worthless (extreme scenario and unlikely, but helpful for illustrating the point), resulting in a DC offset of almost nothing. If the gross DB benefit is in excess of 415, then it will be in excess of 415 after the tiny offset. If the gross DB is not in excess of 415, then it won't matter how small the offset is. I'm sure good arguments could be made for why it should be the net benefit, but everything I've seen indicates it's gross.

At first I was thinking of how unfair this is given the fact that a company could maintain a DB and DC plan (non floor offset) and a participant could have much higher 415 limited benefits. However, I guess the best way to look at it is that the DC offset is  considered part of the participant's pension benefit in a floor offset DB plan.