October 18, 2012 (PLANSPONSOR.com) – The Internal Revenue Service (IRS) announced cost of living adjustments (COLAs) affecting dollar limitations for pension plans and other retirement-related items for tax year 2013.
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $17,000 to $17,500. The catch-up contribution limit for employees ages 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $5,500.
Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the commissioner annually adjust these limits for cost of living increases. The limitations that are adjusted by reference to Section 415(d) generally will change for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.
Effective January 1, 2013, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $200,000 to $205,000. For a participant who separated from service before January 1, 2013, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2012, by 1.0170.
The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2013 from $50,000 to $51,000.
The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C) and 408(k)(6)(D)(ii) is increased from $250,000 to $255,000.
The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $165,000.