Alert October 01, 2007

IRS and SSA Announce Dollar Limits and Thresholds for 2008

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:

Retirement Plans

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 Base

In 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).