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Employee Benefits Law Update
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April 4, 2012

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October 21, 2011

The IRS has announced the 2012 cost-of-living adjustments for retirement plans. Most of the limits related to pension and other retirement plans are changed for 2012.  The dollar limits and thresholds most relevant to 401(k) plans are adjusted as explained below:


Increases effective January 1, 2012:


  • Annual Additions.  The limit on annual additions (i.e., contributions) to defined contribution plans, including 401(k) plans, is increased from $49,000 to $50,000.


  • Annual compensation limit.  The maximum amount of annual compensation that can be taken into account for various qualified plan purposes is increased from $245,000 to $250,000.


  • Elective deferrals.  The annual limit on the tax exclusion for elective deferrals (not including Catch-Up Contributions) is increased from $16,500 to $17,000.


  • Highly compensated employee.  The dollar limit used in defining a highly compensated employee is increased from $110,000 to $115,000.


  • Key Employee in top-heavy plan.  The dollar limit relating to the definition of key employee in a top-heavy plan is increased from $160,000 to $165,000. 


The following plan limits are unchanged:


  • Catch-Up Contributions.  The annual limit on catch-up contributions for individuals age 50 or over for 401(k) plans, SARSEPs, 403(b) contracts, and 457 plans will remain unchanged at $5,500; for SIMPLE plans and SIMPLE IRAs, it will remain unchanged at $2,500.


  • SEP Participation.  The threshold for determining participation in a SEP or SARSEP will remain unchanged at $550.


  • SIMPLE accounts.  The maximum amount of compensation an employee may elect to defer for a SIMPLE plan remains at $11,500.


Social Security taxable wage base.  In addition to the IRS announcement, the Social Security Administration has announced that the Social Security taxable wage base (i.e., the taxable maximum) has increased to $110,100 for 2012 (up from $106,800).


This client alert is intended to inform you of developments in the law and to provide information of general interest.   It is not intended to constitute legal advice regarding a client's specific legal issues and should not be relied upon as such.  This client alert may be considered advertising under the rules of the Massachusetts Supreme Judicial Court.