Today, the Internal Revenue Service (IRS) announced in a news release (IR-2011-103) cost-of-living adjustments applicable to dollar limitations for defined benefit plans and defined contribution plans (and certain other dollar limitations for the 2012 tax year). Due to the increase in the cost-of-living index, many of the pension plan limitations will change for 2012. However, certain limitations will remain unchanged from 2011.

Below is a summary of the material pension plan limitations for 2012:

  • the limit on elective deferrals (Section 402(g)(1)) will increase from $16,500 to $17,000
  • the catch-up contribution limit for those age 50 and older (Section 414(v)(2)(B)(i)) will remain unchanged at $5,500
  • the annual contribution limit for defined contribution plans (Section 415(c)(1)(A)) will increase from $49,000 to $50,000
  • the limitation on the annual benefit under defined benefit plans (Section 415(b)(1)(A)) will increase from $195,000 to $200,000
  • the annual compensation limit applicable to both defined contribution plans and defined benefit plans (Section 401(a)(17)) is increased from $245,000 to $250,000
  • the compensation amount applicable to the definition of “highly compensated employee” (Section 414(q)(1)(B)) is increased from $110,000 to $115,000
  • the compensation amount applicable to the definition of “key employee” in a top-heavy plan (Section 416(i)(1)(A)(i)) is increased from $160,000 to $165,000
  • the dollar amount used for determining the maximum account balance in an ESOP subject to a five-year distribution period (Section 409(o)(1)(C)(ii)) is increased from $985,000 to $1,015,000 and the dollar amount used to determine the lengthening of the five-year distribution period is increased from $195,000 to $200,000.

The IRS announcement also provides that certain pension-related amounts are to receive cost-of-living adjustments. Those adjustments are as follows:

  • the adjusted gross income (AGI) limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit is increased to $34,500 for married taxpayers filing a joint return, to $25,875 for taxpayers filing as head of household, and to $17,250 for all other taxpayers; the limitation under Section 25B(b)(1)(B) is increased to $37,500 for married taxpayers filing a joint return, to $28,125 for taxpayers filing as head of household, and to $18,750 for all other taxpayers; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from to $57,500 for married taxpayers filing a joint return, to $43,125 for taxpayers filing as head of household, and to $28,750 for all other taxpayers
  • the deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions will remain unchanged at $5,000
  • the applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $90,000 to $92,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $56,000 to $58,000. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $169,000 to $173,000
  • the AGI limitation under Section 408A(c)(3)(C)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $169,000 to $173,000. The AGI limitation under Section 408A(c)(3)(C)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $107,000 to $110,000.