Dollar Limitations, COLAs for Pension Plans Released
The following article is provided courtesy of CCH, Inc.
The IRS has announced the dollar limitations applicable to pension plans that become effective January 1, 2002, and cost-of-living adjustments (COLAs) applicable to pension plans and to other provisions affecting such plans for tax year 2002.
The maximum limitation for the Code Sec. 415(b)(1)(A) annual benefit for defined benefit plans increases to $160,000, while the Code Sec. 415(c)(1)(A) limitation for defined contribution plans increases to $40,000. Also, for participants who separated from service before 2002, the Code Sec. 415(b)(1)(B) limitation is computed by multiplying the participant's compensation limit, as adjusted through 2001, by 1.0270. Various other dollar amounts were adjusted as follows:
- The Code Sec. 402(g)(1) limitation on the exclusion for elective deferrals increased to $11,000.
- The annual compensation limit under Code Secs. 401(a)(17), 404(l) and 408(k)(3)(C) is increased to $200,000.
- The limitation under Code Sec. 408(p)(2)(E) regarding SIMPLE retirement accounts is increased to $7,000.
- The limitation on deferrals under Code Sec. 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased to $11,000.
- The dollar limitation under Code Sec. 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is $130,000.
- The dollar limitation under Code Sec. 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Code Secs. 401(k)(11) or 408(p) for individuals aged 50 or over is $1,000. The limitation under Code Sec. 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Code Secs. 401(k)(11) or 408 (p) for individuals aged 50 or over is $500.
- The dollar amount under Code Sec. 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five- year distribution period is increased to $800,000, while the dollar amount used to determine the lengthening of the five-year distribution period is increased to $160,000.
- The limitation used in the definition of highly compensated employee under Code Sec. 414(q)(1)(B) is increased to $90,000.
- The annual compensation limitation under Code Sec. 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed COLAs to the compensation limitation under the plan under Code Sec. 401(a)(17) to be taken into account, is increased to $295,000.
- The compensation amount under Code Sec. 408(k)(2)(C) regarding simplified employee pensions remains unchanged at $450.
- The compensation amounts under Reg. Sec. 1.61-21(f)(5)(i) concerning the definition of "control employee" for fringe benefit valuation purposes is increased to $80,000. The compensation amount under Reg. Sec. 1.61- 21(f)(5)(iii) is increased to $160,000.
Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.