CAPITAL CITIES

Pension Plan Limits For The Tax Years 2001 - 2007

On October 18, 2006, the Internal Revenue Service announced cost of living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 2007.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the Commissioner annually adjust these limits for cost of living increases.

Many of the pension plan limitations will change for 2007. For most of the limitations, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,000 to $15,500. This limitation affects elective deferrals to Section 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans.

401k Plan Limits for Plan Year 2007 2006 2005 2004 2003 2002 2001
401k Elective Deferrals  $15,500 $15,000 $14,000 $13,000 $12,000 $11,000 $10,500
Annual Defined Contribution Limit $45,000 $44,000 $42,000 $41,000 $40,000 $40,000 $35,000
Annual Compensation Limit $225,000 $220,000 $210,000 $205,000 $200,000 $200,000 $170,000
Catch-Up Contribution Limit $5,000 $5,000 $4,000 $3,000 $2,000 $1,000 n/a
Highly Compensated Employees  $100,000 $100,000 $95,000 $90,000 $90,000 $90,000 $85,000
 
Non 401K Related Limits
403(b)/457 Elective Deferrals  $15,500 $15,000 $14,000 $13,000 $12,000 $11,000 $8,500
SIMPLE Employee Deferrals $10,500 $10,000 $10,000 $9,000 $8,000 $7,000 $6,500
SIMPLE Catch-Up Deferral $2,500 $2,500 $2,000 $1,500 $1,000 $500 n/a
SEP Minimum Compensation $500 $450 $450 $450 $450 $450 $450
SEP Annual Compensation Limit $225,000 $220,000 $210,000 $205,000 $200,000 $200,000 $170,000
Social Security Wage Base $97,500 $94,200 $90,000 $87,900 $87,000 $84,900 $80,400

Details of the 2007 Cost-of-Living Limits

Effective January 1, 2007, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $175,000 to $180,000. For participants who separated from service before January 1, 2007, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2006, by 1.0334.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased from $44,000 to $45,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,000 to $15,500.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $220,000 to $225,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $140,000 to $145,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $885,000 to $915,000, while the dollar amount used to determine the lengthening of the 5 year distribution period is increased from $175,000 to $180,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $100,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $5,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.

The annual compensation limitation under Section 401(a)(17) 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 Section 401(a)(17) to be taken into account, is increased from $325,000 to $335,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $450 to $500.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $15,000 to $15,500.

The compensation amounts under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $85,000 to $90,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $175,000 to $180,000.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $10,000 to $10,500.

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THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS LEGAL, TAX OR INVESTMENT ADVICE. CONSULT WITH A QUALIFIED PROFESSIONAL BEFORE ACTING ON ANY INFORMATION CONTAIN IN THIS ARTICLE.