On October 22, 2007 the Internal Revenue Service issued Notice 2007-86 which provides additional transition relief under Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”). Section 409A is the tax provision applicable to non-qualified deferred compensation arrangements, including deferred compensation plans, SERPs and certain severance and bonus arrangements. Specifically, the Notice provides a comprehensive extension to December 31, 2008 to adopt amendments to deferred compensation arrangements that are subject to Section 409A. It is important to note, however, that all deferred compensation arrangements that are subject to Section 409A will continue to be subject to good faith compliance with Section 409A through this additional transition period.
The Internal Revenue Service has announced cost-of-living adjustments to the dollar limits on contributions made to, and benefits under, tax-favored retirement plans, and other thresholds for 2008.
Many of the retirement plan limitations will change for 2008 because the increase in the cost-of-living index met the statutory minimum necessary to trigger an adjustment.
The dollar limits and thresholds applicable for years beginning in 2008 are as follows:
The annual limit on 401(k) contributions, 403(b) elective salary reduction contributions, and deferrals under 457(b) plans remains unchanged at $15,500.
The annual dollar limit for catch-up contributions made to an applicable 401(k) plan or 403(b) arrangement for individuals age 50 or over remains unchanged at $5,000.
The dollar limit on annual benefits payable from a defined benefit plan is increased to $185,000 (from $180,000).
The annual limit on contributions and forfeitures that can be allocated to a participant’s account under a defined contribution plan is increased to $46,000 (from $45,000).
The annual limit on compensation that may be taken into account in determining contributions or benefits (and for certain testing purposes) is increased to $230,000 (from $225,000).
The dollar amount used to determine highly compensated employee (“HCE”) status is increased to $105,000 (from $100,000). This means that an employee will be an HCE for a plan year beginning in 2009 if he or she has compensation in excess of $105,000 for the 2008 plan year. (HCE status for plan years beginning in 2008 will be based on whether the employee has compensation in excess of $100,000 during the 2007 plan year.)
The dollar amount used to identify a key employee for purposes of the top-heavy test (as well as for certain Section 409A purposes) is increased to $150,000 (from $145,000).
Social Security Taxable Wage BaseIn addition to these limits, the Social Security Administration has announced that the Social Security taxable wage base will increase to $102,000 for calendar year 2008 (up from $97,500 for calendar year 2007).