Cost-of-Living Adjustments for Pension Plans Announced

Cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS, effective January 1, 2012. In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged. For those aged 50 or over, the catch-up limit remains at $5,500. The adjusted gross income (AGI) phase-out range for taxpayers making contributions to an IRA or a Roth IRA has increased somewhat, as have the AGI phase-out ranges for the retirement savings contributions credit.

The maximum limitation for the Code Sec. 415(b)(1)(A) annual benefit for defined benefit plans is increased to $200,000, while the Code Sec. 415(c)(1)(A) limitation for defined contribution plans is increased for 2012 to $50,000. Also, for participants who separate from service during 2010 or 2011, the Code Sec. 415(b)(1)(B) limitation for 2012 is computed by multiplying the participant's 2011 compensation limitation by 1.0376. The compensation amounts under Reg. §1.61-21(f)(5)(i) concerning the definition of control employee for fringe benefit valuation purposes is $100,000.

The annual compensation limit under Code Secs. 401(a)(17), Code Sec. 404(l), Code Sec. 408(k)(3)(C) and Code Sec. 408(k)(6)(D)(ii) is increased to $250,000. The annual compensation limitation under Code Sec. 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed COLAs to the compensation limitation under the plan to be taken into account, is increased to $375,000.