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By Compensation Planning & Employee Benefits Group

The Internal Revenue Service has announced the 2016 cost-of-living adjustments (COLAs) for retirement plans. In general, these limits remain as follows:

  • Annual compensation limit. The compensation limit for calculating benefits and contributions, for general and 401(k) discrimination testing, and for determining tax deductions is $265,000 for plan years beginning in 2016.

  • Elective deferrals (401(k)/Roth/403(b)/457). The calendar year elective deferral contribution limit is $18,000 in calendar year 2016.

  • Catch-up contributions. The calendar year dollar limitation for catch-up elective deferral contributions for individuals who, in 2016, are age 50 or above is $6,000 in calendar year 2016.

  • Highly compensated employee. For plan years ending in 2016, a “highly compensated employee” is one who (a) was a more-than-5 percent owner during the year or the preceding year, or (b) for the preceding year (i) had compensation in excess of $120,000 (whether using 2015 or 2016 as the “preceding year”) 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 percent of the employees based on compensation.)

  • Defined contribution plans. The annual dollar limitation on additions to defined contribution plans is $53,000 for plan limitation years ending in 2016.

  • Defined benefit plans. For plan limitation years ending in 2016, the annual dollar benefit limitation under a defined benefit plan is $210,000. For participants who separated from service before January 1, 2016, the 100 percent of average high-three-years’ compensation limit is computed by multiplying the participant’s compensation limitation, as adjusted through 2015, by 1.0178.

  • ESOP five-year distribution period. The dollar amount used in determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period is $1,070,000 in 2016, while the dollar amount used to determine the lengthening of the five-year distribution period is $210,000.

  • Key employee in top-heavy plan. In defining who is a key employee in a top-heavy plan, for plan years ending in 2016, the compensation threshold for an officer is $170,000.

  • Social security taxable wage base. The social security taxable wage base for 2016 (applicable to integrated plans with plan years beginning in 2016) is $118,500.

For more information:

Debra J. Linder

Thomas B. Henke

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