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Cost of Living Adjustments for Employee Benefits Plans for 2012

October 25, 2011

(This advisory has been updated to include the latest information about health savings account (HSA) contributions. See number 8 below for details.)

The Internal Revenue Service has announced the “adjusted” numbers that will apply to various limits on contributions to and benefits under retirement plans. The adjusted figures apply generally to employee benefit plans for “plan years” beginning in 2012. Some of the adjusted amounts, however, apply to calendar year 2012.

1. The limit on an employee’s contributions made during the 2012 calendar year to a 401(k) or a 403(b) tax-sheltered annuity increases to $17,000. Participants who are age 50 or older by the end of 2012 may make an additional $5,500 “catch-up” contribution.

2. The limit on an employee’s contributions made during the 2012 calendar year to a 457 plan sponsored by a governmental unit or a tax-exempt organization increases to $17,000. Participants who are age 50 or older by the end of 2012 may make an additional $5,500 “catch-up” contribution.

3. The limit on an employee’s compensation that may be considered for retirement plan purposes increases to $250,000 for plan years beginning in 2012.

4. The limit on annual benefits payable under “defined benefit” plans increases to $200,000 for plan years beginning in 2012.

5. The limit on allocations to individual accounts in “defined contribution” plans increases to the smaller of $50,000 or 100% of compensation for plan years beginning in 2012.

6. The taxable wage base for OASDI purposes under the Social Security laws increases to $110,100. This figure may affect the “integration level” for plans that are integrated with Social Security.

7. Employees will be “highly compensated employees” for the plan year beginning in 2012 if their compensation in the plan year beginning in 2011 exceeded $110,000.

8. Health savings accounts (HSAs) are a means of paying health care expenses under a “high deductible health care plan.” To be a high deductible health care plan, the deductible must be at least the minimum deductible amount for the year and out-of pocket expenses cannot exceed the maximum out-of pocket amount for the year. Contributions to an HSA may be made by the employer or the employee, but the total annual contribution amount from both sources cannot exceed the maximum contribution amount for the year.

For 2012, the adjusted amounts for HSAs are:

  • Maximum contribution: Family: $6,250 Self: $3,100
  • Minimum deductible: Family: $2,400 Self: $1,200
  • Maximum out of pocket: Family: $12,100 Self: $6,050

Participants who attain age 55 by the end of the 2012 plan year may make an additional $1,000 catch-up contribution to their HSAs.

9. The maximum amounts that Social Security recipients may earn during 2012 without loss of Social Security benefits are as follows:

  • Recipients ages 62 through full retirement age: $1,220/mo. ($14,640/yr.)
  • Year in which recipient reaches full retirement age: $3,240/mo. up to the month the recipient reaches full retirement age.
  • There is no limit on earnings beginning with the month the recipient reaches full retirement age.
  • “Full retirement age” for Social Security is age 66 for persons born from 1943 through 1954.

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