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Compensation Planning & Employee Benefits

Printable Version

Benefit Plans: 2009 COLAs

October 2008

The Internal Revenue Service has announced cost-of-living and statutory adjustments to certain employee benefit plan dollar limitations for 2009. The 2009 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 $230,000 in 2008 to $245,000 for plan years beginning in 2009.

  2. The calendar year 401(k) contribution limitation increases from $15,500 in calendar year 2008 to $16,500 in calendar year 2009.

  3. The calendar year dollar limitation for catch-up 401(k) contributions for individuals who, in 2009, are age 50 or above is increased from $5,000 in calendar year 2008 to $5,500 in calendar year 2009.

  4. For plan years ending in 2009, 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 $110,000 (from $105,000 in 2008) 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 2009, the annual dollar benefit limitation under a defined benefit plan increases from $185,000 in 2008 to $195,000 in 2009. For participants who separated from service before January 1, 2009, the 100% of average high-three-years’ compensation limit is computed by multiplying the participant’s compensation limitation, as adjusted through 2008, by 1.0530.

  6. The annual dollar limitation on additions to defined contribution plans increases to $49,000 for plan limitation years ending in 2009. In 2008, the defined contribution plan dollar limitation was $46,000.

  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 $985,000 in 2009 (from $935,000 in 2008), while the dollar amount used to determine the lengthening of the five-year distribution period increases to $195,000 (from $185,000 in 2008).

  8. In defining who is a key employee in a top-heavy plan, for plan years ending in 2009, the compensation threshold for an officer increases to $160,000 (from $150,000 in 2008).

  9. The social security taxable wage base for 2009 (applicable to integrated plans with plan years beginning in 2009) increases to $106,800 from $102,000 in 2008.

For more information on the 2009 limitations, contact one of the following:

Debra J. Linder
Direct Dial:  612-492-7163
Email:  dlinder@fredlaw.com

John H. Merkle
Direct Dial:  (612) 492-7027
Email:  jmerkle@fredlaw.com

James B. Platt
Direct Dial:  (612) 492-7047
Email:  jplatt@fredlaw.com