Executive Compensation Blog originally appears on CompensationStandards.com
The Internal Revenue Service recently announced cost-of-living adjustments applicable to dollar limitations for qualified retirement plans and other items for 2008. Effective January 1, 2008, the limitations are as follows:
• The annual compensation limit under Sections 401(a)(17) is increased from $225,000 to $230,000.
• The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $100,000 to $105,000.
• The limitation under Section 402(g)(1) on the exclusion for 401(k) elective deferrals remains unchanged at $15,500.
• The limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $180,000 to $185,000.
• The limitation for defined contribution plans under Section 415(c)(1)(A) is increased from $45,000 to $46,000.
• The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $145,000 to $150,000.
These limitations also tend to control the contributions and benefits under employers' non-qualified retirement plans, which are linked to the qualified plans.
Compared to some other forms of executive compensation, the amounts that may accumulate under a qualified retirement plan may seem meager. However, qualified retirement plans are one of last, best tax-sheltered vehicles left for both employers and employees. The 8-10 tax preferences these plans enjoy make them a MUST for every executive compensation program.