IRS issues 2016 COLAs on dollar limitations on pension plans

The Internal Revenue Service has announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2016. In general, the pension plan limitations will not change for 2016 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment. However, other limitations will change because the increase in the index did meet the statutory thresholds.

Employee benefit plans are subject to annually adjusted dollar limitations on benefits, contributions, compensation, and other items. Annual benefit limits are generally calculated based on inflation data from the third fiscal quarter of each year. Adjustments in the limits are rounded down and may not take effect until certain minimum dollar amounts are reached. (IRS New Release IR-2015-118, October 21, 2015; IRB 2015-44, November 2, 2015.)

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