On Thursday, October 20, 2011, the Internal Revenue Service (“IRS”) announced the new qualified retirement plan limits for 2012. With the exception of the catch-up contribution limit, which will remain unchanged, many of the 401(k) plan limitations will increase for 2012. The new plan limits are summarized below:
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To ensure that your 401(k) plan remains in compliance, these new plan limits should be reviewed against your plan documents and forwarded to your payroll department or third-party service provider for implementation (as necessary). In addition, plan sponsors should also consider taking this “change” as an opportunity to audit their 401(k) plan operations to ensure that the proper compensation definitions and plan limits have been applied in previous years. If the compensation limits have not been applied correctly, various plan qualification failures may have occurred. Depending on the nature of the plan qualification failure, a plan sponsor may be able to self-correct the failure or file a correction application with the IRS under the Voluntary Correction Program (“VCP”). Should you have any questions about the new plan limits or correcting a 401(k) plan error, please consult your relationship attorney.