Each year, plan sponsors need to make sure that their qualified benefit plans meet various compliance requirements. These compliance requirements include conforming to limitations provided by the Internal Revenue Service (IRS). In October 2010, the IRS released these limitations.
The limitations generally have remained unchanged since 2008. This is primarily because the cost-of-living index for the quarter ended September 30, 2010, while greater than the cost-of-living index for the quarter ended September 30, 2009, is still less than the cost-of-living index for the quarter ended September 30, 2008. The Social Security Act does not allow for reduced limitations as a result of any decline in applicable indicies.
The following represents the most significant annual limitations for the calendar year 2011 as provided by the IRS:
|Dollar Limit for Annual Benefits/Contributions:|
|Defined Benefit Plans||
|Defined Contribution Plans||
|401(k) and 403(b) Maximum Deferral||
|Catch-up Contribution (age 50 and over)||
|Social Security Taxable Wage Base||
|Maximum Compensation Allowable for Benefit Purposes||
|Compensation for Highly Compensated Employee (HCE) Status||
|Key Employee Compensation Threshold||
|SIMPLE Maximum Deferral||
|457 Maximum Deferral||
If a plan sponsor encounters a situation in which a participant has contributed in excess of the maximum deferral, a corrective distribution should be made to the participant. If the corrective distribution is completed within 2 ½ months after the end of the plan year, the plan sponsor will avoid paying a 10% excise tax (when applicable) to the IRS on the amount of the excess. Corrective distributions will be taxable to the participant in the year distributed.
For further information on these limitations, contact Mara Bruce at firstname.lastname@example.org.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.