The Internal Revenue Service has announced the annual cost-of-living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 2009. With only one exception, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment:
- The limitation on annual benefits under a defined benefit plan is increased from $185,000 to $195,000. For participants who separated from service before January 1, 2009, the defined benefit limitation is computed by multiplying the participant’s compensation limitation, as adjusted through 2008, by 1.0530 (Code sections 415(b)(1)(A) and (B)).
- The limitation on annual additions under defined contribution plans is increased from $46,000 to $49,000 (Code section 415(c)(1)(A)).
- The annual limit on compensation for plan purposes is increased from $230,000 to $245,000 (Code sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii)).
- The maximum amount of elective deferrals that may be made to 401(k) plans, 403(b) annuities, simplified employee pensions (“SEPs”), and 457(b) plans for 2009 is increased from $15,500 to $16,500 (Code sections 402(g)(1) and 457(e)(15)).
- The limitation on the exclusion for elective deferrals to SIMPLE retirement accounts is increased from $10,500 to $11,500 (Code section 408(p)(2)(E)).
- The maximum amount of catch-up contributions that individuals aged 50 or over may make in 2009 to 401(k) plans, 403(b) annuities, SEPs, and 457(b) plans is increased from $5,000 to $5,500 (Code section 414(v)(2)(B)(i)).
- The dollar limitation used for the definition of key employee in a top-heavy plan is increased from $150,000 to $160,000 (Code section 416(i)(1)(A)(i)).
- The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a 5–year distribution period is increased from $935,000 to $985,000, while the dollar amount used to determine the lengthening of the 5–year distribution period is increased from $185,000 to $195,000 (Code section 409(o)(1)(C)(ii)).
- The limitation used in the definition of highly compensated employee is increased from $105,000 to $110,000 (Code section 414(q)(1)(B)).
- The annual compensation limitation for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under Code section 401(a)(17) to be taken into account, is increased from $345,000 to $360,000.
- The minimum compensation amount used for determining required participation in SEPs is increased from $500 to $550 (Code section 408(k)(2)(C)).
- The compensation amounts used in defining “control employee” for fringe benefit valuation is increased from $90,000 to $95,000 for Board or shareholder-appointed, confirmed, or elected officers of the employer and from $185,000 to $195,000 for all other employees of the employer (Reg. sections 1.61–21(f)(5)(i) and 1.61–21(f)(5)(iii)).
Limitation which Remains Unchanged
- The maximum amount of catch-up contributions that individuals aged 50 or over may make in 2009 to SIMPLE 401(k) Plans or SIMPLE Retirement Accounts remains unchanged at $2,500 (Code section 414(v)(2)(B)(ii)).