Cost of Living Adjustments for 2001

[Guest Laura]

I read that CPI is 3.5%. This was just released today. I think this means that the 2001 415/402g limits can be calculated. Has anyone calculated the dollar limits for 2001?

[Dave Baker]

Not me, but is the info at the following Web page helpful in making the calculations?

http://www.benefitslink.com/cgi-bin/qa.cgi...ced_plan_design

[Guest Laura]

Thanks for the link. By my calculation, the $10,500 is not increasing. I multiplied $10,601 times 103.5%. The product is 10,972.04. Assuming that the 402(g) limit is adjusted in $500 increments, rounding down, the limit will remain at $10,500 for 2001. So close, yet so far!

Has anyone else done this calculation?

[John A]

http://www.segalco.com/corporate/pub-corpo...rate.cfm?ID=299

Any verification that Segal is correct? Are these limits definite or projected?

[Michael Devault]

While nothing's official until we see it from the IRS (last year, it showed up in IRB 1999-46, Nov. 15, 1999), Buck Consultants has predicted that the only changes for 2001 will be:

Section 415 defined benefit limit - $140,000 (from $135,000)

Section 415 defined contribution limit - $35,000 (from $30,000)

Section 457(B) limit - $8,500 (from $8,000)

[Guest]

where the annual addition makes a BIG difference (non calendar year plans), as I understand the regs:

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.

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.”

see also example in Pension Answer Book (6.2 1998 edition)

assume limit increases from 30,000 in 1997 to 35,000 in 1998. Plan year begins Feb 1,1997 and ends Jan 31,1998....the maximum annual addition for the plan year ended January 31, 1998 is 35,000 even though the limitation year began in 1997.

note : the compensation limit applies to the limit at the begining of the year.

[Guest LMalone]

Tom, I agree with your understanding of the regs that, for example, a plan with a limitation year beginning 2/1/00 would have the $35,000 cap for the limitation year ending 1/31/01.

Since this is the first jump in DC limits in a long, long time, I think many of us assumed the adjustment was for limitation years beginning in 2001.

Even though the regs and the pension answer book examples seem clear, has anyone heard anything to the contrary that would lead us to believe the adjustment is effective for limitation years beginning in '01?

[Guest]

maybe somebody from defined benefit plan can answer since that has changed every year.

I'm hoping the software will be able to handle it!

[Guest]

hopefully this will be the final response!

here is the word from CybERISA:

$35,000 limit for DC plans takes effect for years ending after December 31, 2000 (added December 5, 2000). The IRS recently announced that the dollar limit under IRC §415©(1)(A) is increased from $30,000 to $35,000, effective January 1, 2001. Increases in the §415©(1)(A) limit takes effect for limitation years that end after the effective date of the limit. See Treas. Reg. §1.415-6(a)(2). Thus, a plan with a limitation year ending January 31, will use the $35,000 limit for the year ending January 31, 2001. Remember, the annual additions limit under §415© is the lesser of 25% of compensation or the applicable dollar limit. For years ending after January 1, 2001, employees with compensation in excess of $140,000, will be limited by the $35,000 limit and employees with compensation of $140,000 or less are limited by the 25% of compensation limit.