IRS Announces 2012 Cost-of-Living Adjustments for Qualified Retirement Plans

November 2011Newsletters For Your Benefit

Last month, the IRS announced the cost-of-living adjustments to the various dollar limitations applicable to qualified retirement plans for 2012. Most of the limitations, which had been unchanged for two years, have increased. Set forth below is a summary of the material changes.

  1. Compensation Limit. The maximum amount of compensation that may be counted for plan purposes for plan years beginning in 2012 is $250,000, up from the $245,000 limitation applicable in 2009 through 2011. This limitation applies for calendar year 2012 and for limitation years beginning in 2012.
  2. Contribution and Benefit Limits. The maximum limit on annual additions to a defined contribution plan is increased from $49,000 to $50,000. Similarly, the maximum annual benefit that may be accrued under a defined benefit plan is adjusted from $195,000 to $200,000. These limitations are applicable for calendar year 2012 and for limitation years ending within 2012.
  3. 401(k) Deferral Limit. The maximum limitation on voluntary salary deferrals for calendar year 2012 is increased from $16,500 to $17,000, but the limit on catch-up deferrals by those age 50 or older remains set at $5,500.
  4. Highly Compensated and Key Employees. Effective for plan years beginning in 2012, a highly compensated employee is any employee: (a) who was a five percent owner during the current or preceding year; or (b) who received compensation from the employer during the preceding year in excess of $115,000. Previously, the dollar threshold was $110,000. The dollar limit used to define a key employee in a top heavy plan is increased from $160,000 to $165,000.
  5. Taxable Wage Base. The Social Security taxable wage base for 2012 will be $110,100, up from $106,800, which was the wage base for 2009 through 2011. For plan years that operate on a fiscal year basis, this wage base will be effective for plan years beginning in 2012.

For more information regarding this topic, please contact any member of Fox Rothschild’s Employee Benefits & Compensation Planning Practice Group.

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