Also a change from previous years, the allowed “catch-up” contribution, available to those who will be age 50 or older by the end of the year, is not tied to a cost-of-living adjustment provision, and will remain unchanged at $5,000 in 2007.
For purposes of non-discrimination testing, the highly compensated threshold remains $100,000 a year, while the annual compensation limit under Sections 401(a) (17), 404(l), 408(k) (3) (C), and 408(k) (6) (D) (ii) is going up from $220,000 to $225,000, and the dollar limit under Section 416(I) (1) (A) (I) concerning the definition of key employee in a top-heavy plan is increased from $140,000 to $145,000.
The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $10,000 to $10,500.
The limit on the annual benefit under a defined benefit plan under Section 415(b) (1) (A) is being bumped up from $175,000 to $180,000, and the amount of employee compensation that can be considered in calculating pension benefits and contributions to defined contribution plans will rise to $225,000 from $220,000.
This annual change in deferral limits is a great way to lead off an education campaign at your clients’ workplaces. Not only does it spur discussion with your CFO or CEO clients (the amount of income subjected to FICA withholding also increased, this year to $97,500 from $94,200), and while they might already be maxing out the current limits, this is a chance to plan ahead. It can also be a good point of contact with the general employee base, especially those over 50 who are eligible for the catch-up provisions, and the Saver’s Credit and Roth 401(k), which were given a new lease on life with the Pension Protection Act.
A table with these changes detailed is online at http://www.plansponsor.com/solution_type1/?RECORD_ID=11611