On October 14, 2005, the Internal Revenue Service announced cost of living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 2007.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the Commissioner annually adjust these limits for cost of living increases.

Many of the pension plan limitations will change for 2007. For most of the limitations, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Furthermore, several limitations, set by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), are scheduled to increase at the beginning of 2007.

Plan Limits for Plan Year

	Code Section	2007	2006	2005	2004	2003
Limitation on salary deferrals (e.g., for 401(k), etc.)	402(g)	15,500 plus 5,000 catch-up for those age 50 or more	15,000 plus 5,000 catch-up for those age 50 or more	14,000 plus 4,000 catch-up for those age 50 or more	13,000 plus 3,000 catch-up for those age 50 or more	12,000 plus 2,000 catch-up for those age 50 or more
Limitation on deferrals within a SIMPLE IRA	408(p)(2)	10,500 plus 2,500 catch-up for those age 50 or more	10,000 plus 2,500 catch-up for those age 50 or more	10,000 plus 2,000 catch-up for those age 50 or more	9,000 plus 1,500 catch-up for those age 50 or more	8,000 plus catch-up for those age 50 or more
Limitation on accruals under a nonqualified deferred compensation plan of a governmental or tax-exempt entity	457(e)(15)	15,500 plus catch-up	15,000 plus catch-up	14,000 plus catch-up	13,000 plus catch-up	12,000
Maximum compensation which may be taken into account per individual in a plan	401(a)(17)	225,000	220,000	210,000	205,000	200,000
Limitation on annual benefits payable at retirement from a defined benefit pension plan	415(b)	180,000	175,000	170,000	165,000	160,000
Limitation on annual additions (i.e., contributions and reallocated forfeitures) to a participant’s account in a defined contribution plan	415(c)	45,000	44,000	42,000	41,000	40,000
Compensation test for highly compensated employee	414(q)	100,000	100,000	95,000	90,000	90,000
Compensation threshold for participation in a SEP	408(k)(2)	500	450	450	450	450
FICA wage base	N/A	97,500	94,200	90,000	87,900	87,000

Details of Cost-of-Living Limits for 2006

Effective January 1, 2006, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) is increased from $170,000 to $175,000. For participants who separated from service before January 1, 2006, the limitation for defined benefit plans under section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2005, by 1.0383.

The limitation for defined contribution plans under section 415(c)(1)(A) is increased from $42,000 to $44,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of section 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows:

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $210,000 to $220,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $135,000 to $140,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $850,000 to $885,000, while the dollar amount used to determine the lengthening of the 5 year distribution period is increased from $170,000 to $175,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $95,000 to $100,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $315,000 to $325,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $450.

The compensation amounts under Section 1.61-21(f)(5)(i) of the Income Tax Regulations concerning the definition of "control employee" for fringe benefit valuation purposes remains unchanged at $85,000. The compensation amount under Section 1.61-21(f)(5)(iii) is increased from $170,000 to $175,000.

Details of Limitations Specified by Statute

The Code, as amended by the Economic Growth and Tax Relief Act of 2001 (EGTRRA), specifies the applicable dollar amount for a particular year for certain limitations. These applicable dollar amounts are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $14,000 to $15,000.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $14,000 to $15,000.

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 408(p) for individuals aged 50 or over is increased from $4,000 to $5,000. 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 408(p) for individuals aged 50 or over is increased from $2,000 to $2,500.

Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.