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limitation year / non-calendar year plans


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#1 Tom Poje

Tom Poje

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Posted 03 April 2000 - 02:21 PM

Read on, you will find this one interesting!

according to the regs established under GATT, the $30,000 annual addition limitation can only increase in increments of $5000.
This figure is tied into the CPI, in particular, the (average CPI value for the period July, Aug, Sep) / 145.7667
the CPI for Feb was 169.5, which means we are currently sitting at 34,884 as the dollar limitation. With 7 months to go there is an excellent chance we will hit 35,000. (The index only has to reach 170.07!)

Now, the annual addition is the amount in effect on the LAST day of the limitation year.(1.415-6(a)(2))
(A plan can define its limitation year = plan year. If there is no definition, it defaults to the calendar year)

1.415-6(B)(7) Time when annual additions credited: an annual addition is credited to the account of a participant for a particular limitation year if it is allocated …as of any date within that limitation year.

Suppose the plan year runs 3/1/00 – 2/28/01. There is no definition of limitation year in the document, so it defaults to the calendar year. Contributions to the plan are ‘deemed’ to be made to the plan as of the last day of the plan year. It appears a contribution made for the plan, since deemed to be made on 2/28/01 falls in the calendar year 2001, and thus the new limit applies.

1.415-6(B)(7)©(example 5) (Plan year runs 3/1/77 – 2/28/78)…..” Because the last day of the plan year is in the 1978 calendar year limitation year, and because, under the terms of the plan, employer contributions are allocated as of the last day of the plan year, the contributions are considered annual additions for the 1978 calendar year limitation year.”

Recall, the compensation limit is as of the first day of the plan year! Thus it appears for non-calendar plan years you end up using two different limitation years. The compensation limit is based on the year 2000 limits, and the annual addition is based on the year 2001 limits. Since the annual addition has been stuck at 30,000 forever (since 1984) it has never made a difference. But this next year it looks like it might.

Agree? Disagree?

#2 John A

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Posted 04 April 2000 - 12:39 PM

Tom, I think I agree, but just to make it even more interesting, how would the limits be checked in the case of 2 plans of the same employer, one with calendar plan year and limitation year, the other with 3/1/00-2/28/01 plan year and limitation year, if the $30,000 limit increases to $35,000?