IRS 2014 Pension Plan Limitations

On October 31, 2013, the IRS announced the following cost-of-living adjustments to certain dollar limitations applicable to employee pension benefit plans for 2014:

• The annual benefit limit for defined benefit plans is increased from $205,000 to $210,000.

• The annual addition limit for defined contribution plans is increased from $51,000 to $52,000.

• The annual limit with respect to the exclusion for elective deferrals to a 401(k), 403(b) or 457 plan remains unchanged at $17,500.

• The annual limit on annual contributions to an individual retirement account (“IRA”) remains unchanged at $5,500. The dollar limit for catch-up contributions to an IRA remains unchanged at $1,000.

• The annual limit on compensation that can be taken into account under a qualified retirement plan is increased from $255,000 to $260,000.

• The dollar limit for defining key employees in a top-heavy plan is increased from $165,000 to $170,000.

• The dollar amount for determining the maximum account balance in an employee stock ownership plan (“ESOP”) subject to a five-year distribution period is increased from $1,035,000 to $1,050,000. The dollar amount used to determine the lengthening of the five-year distribution period is increased from $205,000 to $210,000.

• The dollar limit for catch-up contributions for anyone 50 and older remains unchanged at $5,500, while the limit applicable to those participants under SIMPLE plans and SIMPLE IRAs remains unchanged at $2,500.

• The limitation used in the definition of highly compensated employee remains unchanged at $115,000.

Employers who sponsor qualified retirement plans should review their administrative and payroll procedures to make sure the new limits are reflected as they must operate their plans in accordance with the new limits. The failure to do so could result in plan disqualification. Additionally, individual contributions that exceed the IRA limits may be subject to an excise tax.

Credit: Frank Rubinetti

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