Alert November 03, 2008

IRS and SSA Announce Dollar Limits and Thresholds for 2009

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:

Retirement Plans

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).