2012 Cost-of-Living Adjustments – Retirement Plans

November 14, 2011

IRS has announced the 2012 cost-of-living adjustments (COLAs) for retirement plans. Most of the limits related to pension and other retirement plans.
The following plan limits are increased effective January 1, 2012:

  • Defined benefit plans. The limitation on the annual benefit under a defined benefit plan is increased from $195,000 to $200,000.
  • Defined contribution plans. The limit on the annual additions to a participant’s defined contribution account is increased from $49,000 to $50,000.
  • Annual compensation limit. The maximum amount of annual compensation that can be taken into account for various qualified plan purposes is increased from $245,000 to $250,000.
  • Elective deferrals. The limit on the exclusion for elective deferrals described is increased from $16,500 to $17,000.
  • Deferred compensation plans. The limit on deferrals under deferred compensation plans of state and local governments and tax-exempt organizations, is increased from $16,500 to $17,000.
  • Key employee in top-heavy plan. The dollar limit relating to the definition of key employee in a top-heavy plan, is increased from $160,000 to $165,000.
  • ESOP five-year distribution period. 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 $985,000 to $1,015,000, while the dollar amount used to determine the lengthening of the five-year distribution period is increased from $195,000 to $200,000.
  • Highly compensated employee. The dollar limit used in defining a highly compensated employee is increased from $110,000 to $115,000.

The following plan limits are unchanged:

  • Catch-up contributions. The dollar limit for catch-up contributions to an applicable employer plan other than a plan described in  for individuals aged 50 or over is $5,500.
  • SEPs. The compensation limit (amount of compensation above which an employee who meets other requirements must be able to participate in the employer’s SEP plan) remains at $550.
  • SIMPLE accounts. The maximum amount of compensation an employee may elect to defer for a SIMPLE plan remains at $11,500.