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 $7,500.

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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