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Compensation Planning & Employee Benefits

Printable Version

Benefit Plans: 2008 COLAs and Fidelity Bond Increase

October 2007

The Internal Revenue Service has announced cost-of-living and statutory adjustments to certain employee benefit plan dollar limitations for 2008. The 2008 limitations are as follows:

  1. The compensation limit for calculating benefits and contributions, for general and 401(k) discrimination testing, and for determining tax deductions increases from $225,000 in 2007 to $230,000 for plan years beginning in 2008.
  2. The calendar year 401(k) contribution limitation is $15,500 in calendar year 2008 (the amount remains unchanged from 2007).
  3. The calendar year dollar limitation for catch-up 401(k) contributions for individuals who, in 2008, are age 50 or above is $5,000 (the amount remains unchanged from 2007).
  4. For plan years ending in 2008, a “highly compensated employee” is one who (a) was a more-than-5% owner during the year or the preceding year, or (b) for the preceding year (i) had compensation in excess of $105,000 (from $100,000 in 2007) and (ii) if the employer elects for the plan year, was in the top-paid group of employees. (The top-paid group is the top 20% of the employees based on compensation.)
  5. For plan limitation years ending in 2008, the annual dollar benefit limitation under a defined benefit plan increases from $180,000 in 2007 to $185,000 in 2008. For participants who separated from service before January 1, 2008, the 100% of average high-three-years’ compensation limit is computed by multiplying the participant’s compensation limitation, as adjusted through 2007, by 1.0236.
  6. The annual dollar limitation on additions to defined contribution plans increases to $46,000 for plan limitation years ending in 2008. In 2007, the defined contribution plan dollar limitation was $45,000.
  7. The dollar amount used in determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period increases to $935,000 in 2008 (from $915,000 in 2007), while the dollar amount used to determine the lengthening of the five-year distribution period increases to $185,000 (from $180,000 in 2007).
  8. In defining who is a key employee in a top-heavy plan, for plan years ending in 2008, the compensation threshold for an officer increases to $150,000 (from $145,000 in 2007).
  9. The social security taxable wage base for 2008 (applicable to integrated plans with plan years beginning in 2008) increases to $102,000 from $97,500 in 2007.

FIDELITY BOND MAXIMUM IS INCREASED
FOR PLANS HOLDING EMPLOYER SECURITIES

Plans are required to have a fidelity bond equal to at least 10% of the most current handled assets (DOL Regs. 2580.412-11). The maximum bond required is $500,000. Effective for plan years beginning after December 31, 2007, the fidelity bond maximum is increased from $500,000 to $1 million for plans holding employer securities. No deductible is allowed in the bond and it must be in the name of the plan or trust (not the employer) or the bond must specifically state that the plan or plans (by name) are covered and that the general bond deductible doesn’t apply per ERISA requirement.

If you have any questions, please contact a member of our Compensation Planning & Employee Benefits Group.