Retirement plan COLAs.

• Author: Laffie, Lesli S.
• Position: FROM THE IRS

IR-2005-120 announced cost-of-living adjustments (COLAs) for (1) dollar limits on benefits under qualified retirement plans and (2) other provisions affecting such plans that take effect on Jan. 1, 2006. Also provided were the statutory dollar amounts that were reset or established by the Economic Growth and Tax Relief Reconciliation Act of 2001. The maximum limit for the Sec. 415(b)(1)(A) annual benefit for defined-benefit plans increases from $170,000 to $175,000, while the Sec. 415(c)(1)(A) limit for defined-contribution plans increases from $42,000 to $44,000. Also, for participants who separated from service before 2006, the Sec. 415(b)(1)(B) limit is computed by multiplying the participant's compensation limit, as adjusted through 2005, by 1.0383. Various other dollar amounts are adjusted as follows:

* The Sec. 402(g)(1) limit on the exclusion for elective deferrals under Sec. 402(g)(3), which affects elective deferrals to Sec. 401(k) plans and to the government's Thrift Savings Plan, among other plans, increases from $14,000 to $15,000.

* The Sec. 409(o)(1)(C)(ii) dollar limit for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period increases from $850,000 to $885,000. The dollar amount used to determine the lengthening of the five-year distribution period increases from $170,000 to $175,000.

* The Sec. 414(q)(1)(B) limit used in the definition of a highly compensated employee increases from $95,000 to $100,000.

* The annual compensation limit under Secs. 401(a)(17), 404(1), 408(k) (3)(C) and (6)(D)(ii) increases from $210,000 to $220,000. The annual compensation limit under Sec. 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on...