October 22, 1997
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was repealed by section 1073 of the Taxpayer Relief Act of 1997, P.L. 105-34, effective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 This section repealed section 4980A of the Code, thereby removing the threshold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
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