Background and Details of the Change:
The Internal Revenue Service (IRS) released its defined contribution plan limits for 2017, along with certain other pension and retirement plan limits. Although some compensation limits increased for 2017, employee contribution limits remain unchanged.
Here is a summary of the limits that have changed:
- The limit on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $210,000 to $215,000
- The annual limit on the amount of compensation that can be "taken into account" under section 401(a)(17) pertaining to 401(k) plans increases to $270,000 (from $265,000).
- The limit on annual additions to defined contribution plans increases to $54,000 (from $53,000).
- The limitation concerning the definition of "key employee" in a top-heavy plan increases to $175,000 (from $170,000).
Here is a list of the limits that remain unchanged:
- The limitation on the exclusion for elective deferrals to §401(k) and §403(b) plans remains unchanged at $18,000.
- The compensation amount regarding elective deferrals to SIMPLE retirement accounts remains unchanged at $12,500.
- The limitation concerning elective deferrals to §457 plans of state and local governments and tax-exempt organizations remains unchanged at $18,000.
- The limitation for catch-up contributions to §401(k), 403(b), and 457(b) plans for individuals age 50 or over remains unchanged at $6,000
- The limitation under for catch-up contributions to an employer's SIMPLE plan for individuals age 50 or over remains unchanged at $3,000.
- The limitation used in the definition of "highly compensated employee" remains unchanged at $120,000.
- The compensation amount under §408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
General Impact to Employers:
Employers should review their processes and systems to ensure compliance with the new limit.
For more information, please reference:
Section 415 of the Internal Revenue Code
IRS Notice 2016-62