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IRS Announces Employee Benefit Plan Limits for 2012

The Internal Revenue Service (IRS) recently announced 2012 cost-of-living adjustments to the applicable dollar limits for various employer-sponsored retirement and welfare plans.  Plan sponsors should update payroll and plan administration systems accordingly and should incorporate the new limits in relevant participant communications.  Because 2012 marks the first year the IRS has increased employee benefit plan limits since 2009, plan sponsors also may want to consider updating plan documents to include the new cost-of-living adjustments, to the extent such adjustments are not automatically incorporated by cross-reference.

The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans for 2012.  Although many dollar limits currently in effect for 2011 will change, some limits will remain unchanged for 2012.  Earlier this year, the IRS announced new limits for 2012 relating to high deductible health plans (HDHPs) and health savings accounts (HSAs).  The table below compares the applicable dollar limits for 2011 and 2012 for certain employee benefit programs.

RETIREMENT PLAN LIMITS

2012

2011

Annual compensation limit

$250,000

$245,000

401(k), 403(b) & 457(b) before-tax contributions

$17,000

$16,500

Catch-up contributions (if age 50 or older)

$5,500

$5,500

Highly compensated employee threshold

$115,000

$110,000

Key employee officer compensation threshold

$165,000

$160,000

Defined benefit plan annual benefit and accrual limit

$200,000

$195,000

Defined contribution plan annual contribution limit

$50,000

$49,000

ESOP limit for determining the lengthening of the general five-year distribution period

$200,000

$195,000

ESOP limit for determining the maximum account balance subject to the general five-year distribution period

$1,015,000

$985,000

 

 

 

HEALTH AND WELFARE PLAN LIMITS

 

 

Qualified Transportation Fringe Benefits

 

 

Monthly limit for qualified parking

$240

$230

Monthly limit for transportation in a commuter highway vehicle or transit pass

$125

$230**

 

 

 

Adoption Assistance Programs

 

 

Excludible amount

$12,650

$13,360**

Phase-out modified adjusted gross income thresholds

 

 

Phase-out begins

$189,710

$185,210

Phase-out complete

$229,710

$225,210

 

 

 

HDHP and HSA

 

 

HDHP—Maximum annual out-of-pocket limit (excluding premiums)

 

 

Self-only coverage

$6,050

$5,950

Family coverage

$12,100

$11,900

HDHP—Minimum annual deductible

 

 

Self-only coverage

$1,200

$1,200

Family coverage

$2,400

$2,400

HSA—Annual contribution limit

 

 

Self-only coverage

$3,100

$3,050

Family coverage

$6,250

$6,150

Catch-up contributions (age 55 or older)

$1,000

$1,000

 Plan sponsors should update payroll and plan administration systems for the new 2012 cost-of-living adjustments and should incorporate the new limits in relevant participant communications, like open enrollment materials and summary plan descriptions. Also, because 2012 marks the first year the IRS has increased employee benefit plan limits since 2009, plan sponsors may want to consider updating plan documents to include the new cost-of-living adjustments, to the extent such adjustments are not automatically incorporated by cross-reference.

*Dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan year, tax year or limitation year basis.

**The temporary increase in the income exclusion for this benefit is currently scheduled to expire on December 31, 2011

© 2014 McDermott Will & Emery

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About this Author

Partner

Diane M. Morgenthaler is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  Diane has designed and amended various types of retirement plans for private and public companies and for taxable and tax-exempt employers, including a master and prototype plan for an insurance industry client and various pension profit sharing, 401(k), cash balance, pension equity, age-weighted, money purchase and employee stock ownership plans.  Her practice also includes counseling and drafting supplemental executive retirement plans.

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