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IRS Announces Pension Plan Limitations for 2013

This article was originally featured in our ADP Eye on Washington update.

On October 18, 2012, the Internal Revenue Service (IRS) announced cost of living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 2013.

Per the IRS Release:
The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2013.  In general, many of the pension plan limitations will change for 2013 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.

A summary of the 2013 pension limitations is provided below:

What You Need To Know
The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $5,500.  The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.

For a copy of the IRS announcement, please click here:  http://benefitslink.com/src/irs/IR-2012-77.pdf

Additional Information
For Section 403(b) annuity plans, there is also a special catch-up election for employees who have completed at least 15 years of service with a “qualified organization.”  Such employees are allowed to contribute an additional $3,000 annually.  Therefore, employees age 50 or older, who have completed at least 15 years of service, may contribute up to $3,000 in 2013.

In the case of a Section 457 plan, the age 50 catch-up rule does not apply during the participant’s last three years before retirement, if the plan has a previous catch-up provision.  In the final three years before a participant reaches normal retirement age, the regularly applicable limit can be doubled in certain circumstances.  Therefore, for such employees in their final three years, the catch-up limit is $35,000 ($17,500 x 2) for 2013.

For 2013, employers are required to report participants’ elective qualified pension deferrals on Form W-2 in Box 12 using codes D through H, S, AA, BB, and EE.  The total amount reported for each code must include any elective deferral catch-up contributions.

Generally, at the time of contribution, employee deferrals under the limits stated above are exempt from Federal income tax withholding, but Social Security and Medicare taxes normally apply.  The contribution amounts also are includable in wages for FUTA tax purposes.  However, employer-made contributions to a qualified plan, whether matching or not, are exempt from employment taxes.

Learn more about employment tax solutions from ADP that work with your existing payroll system.



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