Plan Limits

[MoShawn]

Does anyone know where to find unrounded plan limits for 2009?

[Tom Poje]

this spreadsheet has the values over the last few years. The spreadsheet automatically calculates the values if you imput the Consumer Price Index (CPI-U) factors. In 2 weeks the Sept factor (CPI-U factor) will be released and once input into the sreadsheet you will have the 2010 numbers as well. No one is sure if the limits can drop - a strict reading of the regs implies yes, but we will know shortly.

[david rigby]

The Enrolled Actuaries Report includes some unrounded amounts.

In the Winter 2008 issue, look on page 5.

http://www.actuary.org/ear/index.asp

[Tom Poje]

the Sept CPI-U value has been released

so we have for July - Aug - Sept

215.351 215.834 215.969

(of course I have a bit of an inability to type correctly. the excel file I posted earlier had 215.384 instead of 215.834)

so, if you go by a strict reading of the code/regs

we will have the following for 2010

unrounded rounded

Catch up 5479 5000

Deferral 16,437 16,000

Comp 242,700 240,000

DC 415 48,540 48,000

DB 194,160 190,000

Key 157,755 155,000

HCE 109,664 105,000

this would mean a drop in the limits

[John Feldt ERPA CPC QPA]

We'll see - here's an article already in Benefitslinks' stack of stuff for today:

http://www.businessinsurance.com/article/2.../NEWS/910149985

[Tom Poje]

Interesting. I wonder where exactly it says it can't decrease. I think everyone has been waiting to see how they will interpret things.

Of course, things could have decreased if the sunset provisions had kicked in a year or so ago,

and in 1994 the comp limit was cut way back, so there are times when things have been reduced.

I did find the following on CNN regarding Social Security, so the TWB will not change:

Since there will be no COLA for benefits, the law also prohibits the Social Security Administration from increasing the maximum amount of earnings subject to the Social Security tax. This year and next, the first $106,800 of a worker's earnings is subject to the 12.4% Social Security tax. Workers typically pay half of that and their employers pay the other half.

[John Feldt ERPA CPC QPA]

Yeah, predicting isn't quite as straight-forward this year. In the Code, it supports the idea that it can go down by the definition used for the base period, as it states:

415(d) COST-OF-LIVING ADJUSTMENTS. --

IN GENERAL. --The Secretary shall adjust annually the $160,000 amount in subsection (b)(1)(A), in the case of a participant who separated from service, the amount taken into account under subsection (b)(1)(B), and the $40,000 amount in subsection ©(1)(A), for increases in the cost-of-living in accordance with regulations prescribed by the Secretary.

415(d)(2) METHOD. --The regulations prescribed under paragraph (1) shall provide for an adjustment with respect to any calendar year based on the increase in the applicable index for the calendar quarter ending September 30 of the preceding calendar year over such index for the base period, and adjustment procedures which are similar to the procedures used to adjust benefit amounts under section 215(i)(2)(A) of the Social Security Act.

415(d)(3) BASE PERIOD. --For purpose of paragraph (2) --

The base period taken into account for purposes of paragraph (1)(A) is the calendar quarter beginning July 1, 2001

.

But if that link regarding the White House statement is correct, saying it will stay flat, then we certainly have reason for pause here.

[XTitan]

The Social Security wage base is remaining fixed this year at $106,800. According to the SSA,

The formula for determining the OASDI contribution and benefit base is set by law. The formula is applicable only if a cost-of-living increase becomes effective for December of the year in which a determination of the base would ordinarily be made. Because there is no cost-of-living increase for December 2009, the formula is not applicable. Thus the base for 2010 is the same as the 2009 base, $106,800.

If the SSA can stretch to reach this conclusion, we'll have to see if Treasury can stretch as well.

[John Feldt ERPA CPC QPA]

Here's a paragraph from an article from the united transportation union dated today:

http://www.utu.org/worksite/detail_news.cfm?ArticleID=49322

"Obama also announced Wednesday that the IRS would soon issue tax guidance preventing reductions in contribution limits for certain retirement funds, including 401(k) plans and Individual Retirement Accounts. There has been concern among some in the financial industry that federal law could require the limits to be reduced because inflation will be negative this year."

It that's true, then the IRS is re-writing the method on the colas?

[Tom Poje]

If so, hopefully this will not be the typical compromise something like "If I add a non-reduction to pensions to my health reform package, will you guys finally vote for it?"

[masteff]

"in accordance with regulations prescribed by the Secretary" gives a certain amount of latitude to prevent a reduction.

[masteff]

415(d)(2) METHOD. --The regulations prescribed under paragraph (1) shall provide for an adjustment with respect to any calendar year based on the increase in the applicable index for the calendar quarter ending September 30 of the preceding calendar year over such index for the base period, and adjustment procedures which are similar to the procedures used to adjust benefit amounts under section 215(i)(2)(A) of the Social Security Act.

Or you could be extremely literal about the word "increase" is this paragraph.

[John Feldt ERPA CPC QPA]

http://www.publicbroadcasting.net/wuky/new...nts.to.elderly#

The amount people can contribute to 401 (k) accounts, Individual Retirement Accounts and defined benefits plans also are affected by negative inflation, the officials said. Some in the investment community have expressed concern that contribution limits might be reduced, they said.

"The Treasury Department and the IRS (Internal Revenue Service) will be issuing a release later this week -- tomorrow or the next day -- that will indicate that our interpretation of the statutory cost of living adjustment formula is that there will be no decrease," said one official.

"The Treasury interpretation will prevent any reduction in those pension, 401 (k), IRA dollar limits and thresholds for 2010," the official added.

So it's possible we might not even see anything today. I guess I'll stop hitting refresh on my google search for "irs 2010 cola" within the last hour...

[movedon]

I think it came out on the 16th last year.

[four01kman]

A spokesman for the Obama Administration today indicated there would be no decrease (or increase) in the COLA limits for 2010. Further, that the IRS would be issuing something later this week.

[John Feldt ERPA CPC QPA]

Yep.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Commissioner annually adjust these limits for cost-of-living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made pursuant to adjustment procedures which are similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act. The limitations that are adjusted by reference to Section 415(d) will remain unchanged for 2010. This is because the cost-of-living index for the quarter ended September 30, 2009, is less than the cost-of-living index for the quarter ended September 30, 2008, and, following the procedures under the Social Security Act for adjusting benefit amounts, any decline in the applicable index cannot result in a reduced limitation.

There you have it.

[John Feldt ERPA CPC QPA]

Defined benefit = $195,000

Defined contribution = $49,000

Section 402(g)(1) = $16,500

401(a)(17), 404(l), 408(k)(3)©, and 408(k)(6)(D)(ii) = $245,000

Section 416(i)(1)(A)(i) $160,000

Section 409(o)(1)©(ii) ESOP 5-year distribution period = $985,000 / $195,000

HCE, Section 414(q)(1)(B) = $110,000

Section 414(v)(2)(B)(i) for catch-up contributions = $5,500

Section 414(v)(2)(B)(ii) for catch-up contributions = $2,500

Gov Plan Compensation limitation = $360,000

Compensation amount under Section 408(k)(2)© (SEPs) = $550

Section 408(p)(2)(E) SIMPLE = $11,500

Section 457(e)(15) = $16,500

[XTitan]

Anybody want to guess on what the unrounded limits are?

[John Feldt ERPA CPC QPA]

Catchup is 5,479 ?

402(g) is 16,437 ?

401a17 is 242,700 ?

DC 415 is 48,540 ?

DB 415 is 194,160 ?

Key is 157,755 ?

HCE is 109,664 ?

Simple is 11,378 ?

Maybe.

[masteff]

http://www.irs.gov/newsroom/article/0,,id=214321,00.html

[mbozek]

Interesting. I wonder where exactly it says it can't decrease. I think everyone has been waiting to see how they will interpret things.

Of course, things could have decreased if the sunset provisions had kicked in a year or so ago,

and in 1994 the comp limit was cut way back, so there are times when things have been reduced.

I did find the following on CNN regarding Social Security, so the TWB will not change:

Since there will be no COLA for benefits, the law also prohibits the Social Security Administration from increasing the maximum amount of earnings subject to the Social Security tax. This year and next, the first $106,800 of a worker's earnings is subject to the 12.4% Social Security tax. Workers typically pay half of that and their employers pay the other half.

There is nothing to interpret because IRC 415(d)(1) only allows adjustments for increases in the cost of living. What I cant understand is how the urban legend that limits could fall because of the decline in cola got started. I recall there was an article on 2010 cola changes published by a national consulting company a month ago that quoted one of the authors as saying that the IRS had not responded to their inquiry of whether any limits would be reduced. I gues they could not find the answer in the IRC.

[quinnfield]

Here's a table from DataIR:

AnnualLimits.pdf

[John Feldt ERPA CPC QPA]

Anybody want to guess on what the unrounded limits are?

This shows the 2009 limits and methodology:

http://www.irs.gov/pub/irs-tege/2009_415_white_paper.pdf

I see no 2010 "white paper" yet.

[david rigby]

I estimate the 2010 SSWB would have been $109,200 if not constrained by the COLA.

I looked for this on the SS website, but could not find an anwer: assuming next year's COLA is greater than zero, I wonder if that means the 2011 wage base will reflect two years of increase.

Anyone have any insight?

[Tom Poje]

mbozek

my problem with the statement

"There is nothing to interpret because IRC 415(d)(1) only allows adjustments for increases in the cost of living"

is that the code says you adjust the limit for increases by comparing to a base period (e.g. 2001) as opposed to adjsuting it for increases to the prior year. Thus, I could understand the argument that you could never drop below the base period amounts. While it is true if you used the formula the limits would decrease from last year, they would still be an increase over the original base amounts - and that is what you are adjusting.

Even the IRS says the amounts will remain the same because of 415(d)(2)(B) which says "adjustment procedures which are similar to the procedures used to adjust benefit amounts under section 215(i)(2)(A) of the Social Security Act". I assume these say you can't decrease the SSRA amount.

[Tom Poje]

David:

From what I read (copied from http://www.socialsecurity.gov/OACT/COLA/latestCOLA.html), it would simply be a one year increase:

What is a COLA?

Legislation enacted in 1973 provides for cost-of-living adjustments, or COLAs. With COLAs, Social Security and Supplemental Security Income (SSI) benefits keep pace with inflation.

No COLA

There will be no increase in Social Security benefits payable in January 2010, nor will there be an increase in SSI payments.

How is a COLA calculated?

The Social Security Act specifies a formula for determining each COLA. In general, a COLA is equal to the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of one year to the third quarter of the next. If there is no increase, there is no COLA.

COLA Computation

For the December 2009 COLA, we measure the increase (if any) in the average CPI-W from the third calendar quarter of 2008 to the third quarter of 2009. These averages are 215.495 and 211.001 for the third calendar quarters of 2008 and 2009, respectively, and are derived from monthly CPI-Ws developed by the Bureau of Labor Statistics.

Month CPI-W for

2008 2009

July 216.304 210.526

August 215.247 211.156

September 214.935 211.322

Total 646.486 633.004

Average (rounded to the nearest 0.001) 215.495 211.001

[sorry, I cut and pasted, I don't know how to line the table up so the values in neat columns]

Because there is no increase in the CPI-W from the third quarter of 2008 through the third quarter of 2009, there is no COLA.

I see that they compare one year to the prior year (unlike plan limitations which is one year to a base period of 2001 [or whatever base period, since catch-ups would have a different base])

I did not realize that. so, my logic would say the plan limits could have actually decreased, but since 415(d)(2)(B) kicks in they stay the same.

[mbozek]

mbozek

my problem with the statement

"There is nothing to interpret because IRC 415(d)(1) only allows adjustments for increases in the cost of living"

is that the code says you adjust the limit for increases by comparing to a base period (e.g. 2001) as opposed to adjsuting it for increases to the prior year. Thus, I could understand the argument that you could never drop below the base period amounts. While it is true if you used the formula the limits would decrease from last year, they would still be an increase over the original base amounts - and that is what you are adjusting.

Even the IRS says the amounts will remain the same because of 415(d)(2)(B) which says "adjustment procedures which are similar to the procedures used to adjust benefit amounts under section 215(i)(2)(A) of the Social Security Act". I assume these say you can't decrease the SSRA amount.

Where does the IRS say that benefits or contributions under IRC 415 can be reduced because of a decline in the base period as long as it does not drop below the base amont in 2001? Reg. 1.415-1(d) specificially states that the amounts shall be adjusted annually for increases in cost of living. In fact there is no reference in the any part of the 415(d) regs to any adjustments on account of a decrease in the cost of living. Is there any difference in the answer if the cola adjustments in 415(d)(1) are made by incorporating the procedures under the SSA in 415(d)(2)(B) which prohibit any reduction because of a decline in the SS cola amount?

All you have done is create a distinction without a difference.

[masteff]

Reg. 1.415-1(d) specificially states that the amounts shall be adjusted annually for increases in cost of living.

mjb - but read how it defines the cost of living... it's the current versus the base year (not the prior year, which is how SS is indexed). That's the point Tom was making. It's indexed based on increase in current over base. So Tom's point was that as long as the new number is above the base, then you could have a decrease from the prior year.

That said, Tom then notes that 415(d)(2)(B) says "adjustment procedures which are similar to the procedures used to adjust benefit amounts under section 215(i)(2)(A) of the Social Security Act". So then the decrease is blocked.

[XTitan]

I estimate the 2010 SSWB would have been $109,200 if not constrained by the COLA.

I looked for this on the SS website, but could not find an anwer: assuming next year's COLA is greater than zero, I wonder if that means the 2011 wage base will reflect two years of increase.

Anyone have any insight?

If I'm reading section 230 of the Social Security Act correctly, it would reflect two years of increase. However, if the 2009 average wage index drops below the 2007 average wage index, the wage base would remain flat; it can't decrease.

[david rigby]

I think Tom has it correct: if the increase is defined by the year-over-year increase in the CPI (or any other index), then 2011 will reflect a one-year increase.

BTW, in separate correspondence, the SSA has confirmed my estimate: the wage base would have been $109,200.

[XTitan]

I think Tom has it correct: if the increase is defined by the year-over-year increase in the CPI (or any other index), then 2011 will reflect a one-year increase.

BTW, in separate correspondence, the SSA has confirmed my estimate: the wage base would have been $109,200.

I think Tom is right too, but that material didn't touch on the wage base calculation. The national average wage index isn't based on any inflation factor; it's based on the amount of wages actually reported to the SSA. Since the reported 2008 national average wage index increased over 2007, we should have seen the wage base increase up to $109,200 if it wasn't for the fact that 230(a) below says increases to the wage base occur only if the are COLA increases. 230(b) notes that the wage base can't go down. We'll just have to wait until next October.

For reference:

Sec. 230. [42 U.S.C. 430] (a) Whenever the Commissioner of Social Security pursuant to section 215(i) increases benefits effective with the December following a cost-of-living computation quarter, the Commissioner shall also determine and publish in the Federal Register on or before November 1 of the calendar year in which such quarter occurs the contribution and benefit base determined under subsection (b) or © which shall be effective with respect to remuneration paid after the calendar year in which such quarter occurs and taxable years beginning after such year.

(b) The amount of such contribution and benefit base shall (subject to subsection ©) be the amount of the contribution and benefit base in effect in the year in which the determination is made or, if larger, the product of—

(1) $60,600, and

(2) the ratio of (A) the national average wage index (as defined in section 209(k)(1)) for the calendar year before the calendar year in which the determination under subsection (a) is made to (B) the national average wage index (as so defined) for 1992,

with such product, if not a multiple of $300, being rounded to the next higher multiple of $300 where such product is a multiple of $150 but not of $300 and to the nearest multiple of $300 in any other case.