IRS Announces 1998 Pension Plan Limitations

WASHINGTON - The Internal Revenue Service today announced cost-of-living adjustments applicable to dollar limitations on benefits under qualified retirement plans and to other provisions affecting such plans.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under these plans. It also requires that the Commissioner annually adjust these limits for cost-of-living increases. Effective January 1, 1998, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) is increased from $125,000 to $130,000. For participants who separated from service before January 1, 1998, the limitation for defined benefit plans under section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 1997, by 1.0220.

The limitation for defined contribution plans under section 415(c)(1)(A) remains unchanged at $30,000.

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 dollar limitation on early retirement benefits for qualified police or firefighters in a defined benefit plan was amended by section 1527 of the Taxpayer Relief Act of 1997, P.L. 105-34, effective for years beginning after December 31, 1996. This section amended section 415(b)(2)(G) of the Code so that the dollar limitation for qualified police or firefighters is not reduced where the benefit begins before the social security retirement age.

The limitation on the exclusion for elective deferrals under section 402(g)(1) is increased from $9,500 to $10,000.

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 $710,000 to $725,000, while the dollar amount used to determine the lengthening of the 5-year distribution period is increased from $140,000 to $145,000.

The excess distribution and excess retirement accumulation tax was repealed by section 1073 of the Taxpayer Relief Act of 1997, P.L. 105-34, effective for excess distributions received after, and to estates of decedents dying after, December 31, 1996. This section repealed section 4980A of the Code, thereby removing the threshold amount under section 4980A(c)(1)(B) regarding excess distributions.

The limitation used in the definition of highly compensated employee under section 414(q)(1)(B) remains unchanged at $80,000.

The annual compensation limit under sections 401(a)(17) and 404(l) remains unchanged at $160,000. 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 $265,000.

The compensation amount under section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $400. The compensation amount under section 408(k)(3)(C) for SEPs remains unchanged at $160,000.

The limitation under section 408(p)(2)(A) regarding simple retirement accounts remains unchanged at $6,000.

The limitation on deferrals under sections 457(b)(2) and (c)(1) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $7,500 to $8,000.

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.

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