Compensation arrangements that are subject to Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), including deferred compensation arrangements, SERPs and certain employment and severance agreements, must all be amended to comply with the requirements of Section 409A no later than December 31, 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 2009.
Many of the retirement plan limitations will change for 2009 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 2009 are as follows:
The annual limit on 401(k) contributions, 403(b) elective salary reduction contributions, and deferrals under 457(b) plans is increased to $16,500 (from $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 is increased to $5,500 (from $5,000).
The dollar limit on annual benefits payable from a defined benefit plan is increased to $195,000 (from $185,000).
The annual limit on contributions and forfeitures that can be allocated to a participant’s account under a defined contribution plan is increased to $49,000 (from $46,000).
The annual limit on compensation that may be taken into account in determining contributions or benefits (and for certain testing purposes) is increased to $245,000 (from $230,000).
The dollar amount used to determine highly compensated employee (“HCE”) status is increased to $110,000 (from $105,000). This means that an employee will be an HCE for a plan year beginning in 2010 if he or she has compensation in excess of $110,000 for the 2009 plan year. (HCE status for plan years beginning in 2009 will be based on whether the employee has compensation in excess of $105,000 during the 2008 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 $160,000 (from $150,000).
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 $106,800 for calendar year 2009 (up from $102,000 for calendar year 2008).