Milberg Consulting LLC News & Insights

The IRS announced the 2012 dollar limits on benefits and compensation for qualified retirement plans, SEPs and SIMPLEs in IRS News Release IR-2011-103. Note that our annual limits' charts shown below now include the current and historical limits for contributions to Health Savings Accounts (HSA), and the interest rates typically applicable (but not yet required) to cash balance pension plan credits.

Increases in the contribution and benefits limits are indexed annually based on cost-of-living adjustments subject to preset minimum increments (except for the Social Security Wage Base). Each limit applies to different measuring periods as indicated.

Most notable are the defined contribution maximum annual additions limit increase from $49,000 to $50,000, the maximum calendar year 401(k) deferral limit increase from $16,500 to $17,000, the defined benefit maximum annual benefit limit increase from $195,000 to $200,000, and the maximum compensation limit increase from $245,000 to $250,000; and the Social Security Wage Base increase from $106,800 to $110,100. The maximum calendar year 401(k) "catch-up," the SIMPLE deferral and the SIMPLE "catch-up" limits remain the same as the 2011 limits.

Commentary For the very small employer (1-20 eligible employees), the increases in the compensation, annual addition/benefit and 401(k) limits translate into increased contributions/benefits for the small business owner and lower cost to fund benefits for eligible employees. Look for case studies illustrating the impact of these changes in the coming weeks.

Increase as compared to the 2011 limit shown in bold. Access 2008-2012 limits chart here or via link provided below.

2012 IRS Limits for Qualified Retirement Plans, SEPs and SIMPLEs and HSA & Cash Balance Pension Plan Interest Credit Rate
	2012 Limit	Minimum Increment for COLA Increase	Applicable Measuring Period
Defined Contribution Annual Additions Limit	$50,000	$1,000	Limitation Years ending in 2012
Defined Benefit Annual Benefit Limit	$200,000	$5,000	Limitation Years ending in 2012
Social Security Taxable Wage Base	$110,100	N/A	For Permitted Disparity, Plan Years beginning in '12
Qualified Retirement Plan Compensation Limit	$250,000	$5,000	Plan Years beginning in '12
401(k)/403(b)/457(b) Calendar Year Deferral Limit	$17,000	$500	Calendar Year
SIMPLE Plan Calendar Year Deferral Limit	$11,500	$500	Calendar Year
"Catch-up" Limit (age 50+) 401(k)/403(b)/457 SIMPLE	$5,500 $2,500	$500	Calendar Year
SEP Contribution Eligibility Min. Compensation Required	$550	$50	Limitation Years ending in 2012
HCE Definition Compensation Test	$115,000	$5,000	Look Back Years beginning in 2011
Top heavy Key EE Definition
Top Ten Owner Test	N/A	N/A
Officer Test	$165,000	$5,000	Plan Year that includes the 2012 Top Heavy determination date
1% Owner Test	$150,000	N/A
Health Savings Account (HSA) Calendar Year Limit	Single $3,100 Family $6,250	$50	Calendar Year
HSA Age 55 or older Calendar Year Limit	Single $4,100 Family $7,250	$50	Calendar Year
30-Year Treasury Securities Rate Cash Balance Pension Interest Credit October of Prior Plan Year	3.13%	N/A	October 2011

2008-2012 IRS Limits on Benefits and Compensation for Qualified Retirement Plans, SEPs and SIMPLEs Chart

IRS News Release IR-2011-103

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The information provided is intended as a general resource, not as investment or retirement planning, or legal plan compliance advice or counsel. If you consider any actions discussed in this update, we suggest that you consult a qualified planning, tax or ERISA professional. ERISA Expertise LLC and Barry R. Milberg do not warrant and are not responsible for any errors and omissions from this update. Any tax advice included in this written or electronic communication is not intended or written to be used, and it cannot be used, by the taxpayer for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.

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