The Internal Revenue Service has announced the 2012 limits that affect the operation of tax-qualified retirement plans, including 401(k) plans, and certain other types of employee benefit plans, including deferred compensation plans that may be subject to Internal Revenue Code §409A. The amount by which the limits are adjusted each year is based on a cost of living index. Please see the accompanying table for the limits that are effective January 1, 2012.
The Social Security (OASDI) taxable wage base, which governs the amount of pay subject to Social Security tax withholding and affects plans that are "integrated" with Social Security, also is subject to adjustment annually. For 2012, the OASDI taxable wage base has been increased to $110,100. The Medicare tax, however, applies to all wages without limit.
2012 ADJUSTED LIMITS
|Provision ||2012 Limit |
|Maximum 401(k) Contributions ||$17,000 |
|Maximum Compensation Limit ||$250,000 |
|Highly Compensated Employees |
Earning (in previous year) more than
|Key Employee Limit || $165,000 |
|Annual Contribution Limit for Defined Contribution Plans || $50,000 |
|Annual Benefit Limit for Defined Benefit Plans || $200,0001 |
|SIMPLE Plan Limit || $11,500 |
|Age 50 and Older Catch-Up Contribution Limit |
All plans other than SIMPLE Plans
|Annual Contribution Limit for Section 457 Deferred Compensation Plans (government and tax-exempt organizations) || $17,000 |
Maximum account balance subject to five-year distribution period
Each dollar amount of account balance in excess of $915,000 that
adds one year to distribution period
|Simplified Employee Pension Plans (SEPs) |
Contributions must be made for employees earning at least
|409A Maximum Specified Employee (Officer) Compensation Requirement ||$165,000 |
|409A Involuntary Separation Pay Exception ||$500,000 |
If you have questions about this Alert, please contact a member of your Cooley team or one of the attorneys from the Compensation & Benefits Group listed above.
1 Note that the limit on benefits payable to a defined benefit plan participant for a particular year is the lesser of (i) the Annual Benefit Limit for Defined Benefit Plans for that year and (ii) 100% of the participant's average compensation for his high three years For 2012, the Annual Benefit Limit for such participant is $200,000. However, such participant's "average compensation" limit is adjusted due to the variance in the cost of living indexes over the past few years. For a participant who separated from service before 2010, the "average compensation" limit for 2012 is computed by multiplying the participant's 2011 "average compensation" limit by 1.0327. For a participant who separated from service during 2010 or 2011, the "average compensation" limit for 2012 is computed by multiplying the participant's 2011 "average compensation" limit by 1.0376.