October 24, 1996
IRS Announces 1997 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, 1997, the limitation
on the annual benefit under a defined benefit plan under section
415(b)(1)(A) is increased from $120,000 to $125,000. For
participants who separated from service before January 1, 1997, the
limitation for defined benefit plans under section 415(b)(1)(B) is
computed by multiplying the participant's compensation limitation,
as adjusted through 1996, by 1.0294.
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 special limitation for qualified police or firefighters
under section 415(b)(2)(G) is increased from $66,000 to $70,000.
The limitation on the exclusion for elective deferrals under
section 402(g)(1) remains unchanged at $9,500.
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 $690,000 to $710,000, while the dollar amount used to determine
the lengthening of the 5-year distribution period is increased from
$135,000 to $140,000.
The threshold amount under section 4980A(c)(1)(B) regarding
excess distributions is increased from $155,000 to $160,000.
The limitation used in the definition of highly compensated
employee under section 414(q)(1)(B), as changed by section 1431 of
the Small Business Job Protection Act of 1996, is $80,000.
The annual compensation limit under sections 401(a)(17) and
404(l) is increased from $150,000 to $160,000.
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 is increased
from $150,000 to $160,000.
The compensation amount under section 408(p)(2)(A) regarding
simple retirement accounts, as added by section 1421 of the Small
Business Job Protection Act of 1996, is $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 remains unchanged at
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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