Thanks to the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), many of the pension plan limitations will not require a change beyond that already announced for 2003. For most of the limitations, the increase in the cost-of-living index is less than the statutory thresholds that would otherwise trigger their adjustment, the IRS noted in Release No: IR-2002-111 ).
Limits already scheduled for revision, effective in 2003 include:
- the limitation under tax code Section 402(g)(1) for elective deferrals will increase to $12,000 from $11,000, as will the limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations
- the limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $7,000 to $8,000.
- the dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan for individuals aged 50 or over is increased from $500 to $1,000.
- the dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or 408 (p) for individuals aged 50 or over is increased from $1,000 to $2,000.
Limits that will not change include:
- the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $160,000.
- the limitation for defined contribution plans under section 415(c)(1)(A) remains unchanged at $40,000
- the limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $90,000.
- the annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) remains unchanged at $200,000
- the dollar limitation under section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $130,000
- the compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $450.
The dollar amount used to determine the lengthening of the five-year distribution period in an employee stock ownership plan (ESOP) remains unchanged at $160,000. However, the dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance will increase from $800,000 to $810,000.
IRS said 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.