Benefit Plans: 2010 COLAs and Forms Update
October 2009
The Internal Revenue Service has announced cost-of-living adjustments (which are few) to certain employee benefit plan dollar limitations for 2010. The 2010 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 remains unchanged at $245,000 for plan years beginning in 2010.
2. The calendar year 401(k) contribution limitation remains unchanged at $16,500 in calendar year 2010.
3. The calendar year dollar limitation for catch-up 401(k) contributions for individuals who, in 2010, are age 50 or above remains unchanged at $5,500 in calendar year 2010.
4. For plan years ending in 2010, a “highly compensated employee” is one who (a) was a more-than-5% owner during the year or the preceding year, or (b) in 2009 (i) had compensation in excess of $110,000 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 2010, the annual dollar benefit limitation under a defined benefit plan remains unchanged at $195,000 in 2010. For participants who separated from service before January 1, 2010, the 100% of average high-three-years’ compensation limit is computed by multiplying the participant’s compensation limitation, as adjusted through 2009, by 1.0000.
6. The annual dollar limitation on additions to defined contribution plans remains unchanged at $49,000 for plan limitation years ending in 2010.
7. The dollar amount used in determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period remains unchanged at $985,000 in 2010, while the dollar amount used to determine the lengthening of the five-year distribution period remains unchanged at $195,000.
8. In defining who is a key employee in a top-heavy plan, for plan years ending in 2010, the compensation threshold for an officer remains unchanged at $160,000.
9. The social security taxable wage base for 2010 (applicable to integrated plans with plan years beginning in 2010) remains unchanged at $106,800.
FORMS UPDATE
The IRS has issued a new model distribution notice that must accompany each distribution application. This notice and new distribution request forms for plans with optional annuity forms of distributions are available and should be used for all future distributions. Please contact us to obtain those forms.
For more information on the 2010 limitations, contact one of the following:
Debra J. Linder
Direct Dial: 612-492-7163
Email: dlinder@fredlaw.com
Cari L. Martell
Direct Dial: 612.492.7438
Email: cmartell@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