IRS issues 2018 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 2018. Many of the pension plan limitations will change for 2018 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.
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.

2017-2018 plan limits

The 2018 dollar limitations announced by the IRS are as follows:

  • Elective Deferrals — $18,500
  • Catch-up Contributions (non-SIMPLE) — $6,000
  • Annual Defined Benefit Limit — $220,000
  • Annual Defined Contribution Limit — $55,000
  • Annual Compensation Limit — $275,000
  • Grandfathered Compensation Rule for Government Plans — $405,000
  • Deferrals for Government Plans — $18,500
  • Highly Compensated Employee Limit — $120,000
  • SIMPLE Plan Employee Deferrals — $12,500
  • Catch-up contributions (SIMPLE) — $3,000
  • SEP Coverage — $600
  • SEP Compensation Amount — $275,000
  • Tax Credit ESOP Maximum Balance — $1,105,000
  • Amount for Lengthening of 5-Year ESOP Period — $220,000

The compensation amount under IRS Reg. §1.61-21(f)(5)(i) concerning the definition of “control employee” for fringe benefit valuation purposes will increase to $110,000. The compensation amount under IRS Reg. §1.61-21(f)(5)(iii) will increase to $220,000. (IRS New Release IR-2017-177, October 19, 2017; IRS Notice 2017-64, IRB 2017-45, November 6, 2017.)

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