Part III. — Internal Revenue Bulletin 2004-46

2005 Limitations Adjusted As Provided in Section 415(d), etc. ¹

Notice 2004–72

Section 415 of the Internal Revenue Code (the Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415 also requires that the Commissioner annually adjust these limits for cost-of-living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments. Many of the limitations will change for 2005. For most of the limitations, the increase in the costof-living index met the statutory thresholds that trigger their adjustment. Furthermore, several of these limitations, set by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), are scheduled to increase at the beginning of 2005. For example, under EGTRRA, the limitation under § 402(g)(1) of the Code on the exclusion for elective deferrals described in § 402(g)(3) is increased from $13,000 to $14,000. This limitation affects elective deferrals to § 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans.

Cost-of-Living limits for 2005

Effective January 1, 2005, the limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) is increased from $165,000 to $170,000. For participants who separated from service before January 1, 2005, the limitation for defined benefit plans under § 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2004, by 1.0273.

The limitation for defined contribution plans under § 415(c)(1)(A) is increased from $41,000 to $42,000.

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 § 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows:

The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $205,000 to $210,000.

The dollar limitation under § 416(i) (1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $130,000 to $135,000.

The dollar amount under § 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 $830,000 to $850,000, while the dollar amount used to determine the lengthening of the 5-year distribution period is increased from $165,000 to $170,000.

The limitation used in the definition of highly compensated employee under § 414(q)(1)(B) is increased from $90,000 to $95,000.

The annual compensation limitation under § 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 § 401(a)(17) to be taken into account, is increased from $305,000 to $315,000.

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

The compensation amounts under § 1.61–21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $80,000 to $85,000. The compensation amount under § 1.61–21(f)(5)(iii) is increased from $165,000 to $170,000.

Limitations specified by statute

The Code, as amended by EGTRRA, specifies the applicable dollar amount for a particular year for certain limitations.

These applicable dollar amounts are as follows:

The limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) is increased from $13,000 to $14,000.

The limitation under § 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $9,000 to $10,000.

The limitation on deferrals under § 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $13,000 to $14,000.

The dollar limitation under § 414(v) (2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in § 401(k)(11) or 408(p) for individuals aged 50 or over is increased from $3,000 to $4,000. The dollar limitation under § 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in § 401(k)(11) or 408(p) for individuals aged 50 or over is increased from $1,500 to $2,000.

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.

Drafting Information

The principal author of this notice is John Heil of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding the data in this notice, please contact the Employee Plans’ taxpayer assistance telephone service at 1–877–829–5500 (a toll-free call) between the hours of 8 a.m. and 6:30 p.m. Eastern time Monday through Friday. For information regarding the methodology used in arriving at the data in this notice, please contact Mr. Heil at 1–202–283–9888 (not a toll-free call).

1 Based on News Release IR–2004–127 dated October 20, 2004.

November 15, 2004 840 2004–46 I.R.B.

Social Security Contribution and Benefit Base for 2005

Notice 2004–73

Under authority contained in the Social Security Act (“the Act”), the Commissioner, Social Security Administration, has determined and announced (69 F.R. 62497, dated October 26, 2004) that the contribution and benefit base for remuneration paid in 2005, and self-employment income earned in taxable years beginning in 2005 is $90,000.

“Old-Law” Contribution and Benefit Base

General

The “old-law” contribution and benefit base for 2005 is $66,900. This is the base that would have been effective under the Act without the enactment of the 1977 amendments. We compute the base under section 230(b) of the Act as it read prior to the 1977 amendments.

The “old-law” contribution and benefit base is used by:

(a) The Railroad Retirement program to determine certain tax liabilities and tier

II benefits payable under that program to supplement the tier I payments which correspond to basic Social Security benefits,

(b) The Pension Benefit Guaranty Corporation to determine the maximum amount of pension guaranteed under the Employee Retirement Income Security Act (as stated in section 230(d) of the Social Security Act),

(d) Social Security to determine a year of coverage (acquired whenever earnings equal or exceed 25 percent of the “oldlaw” base for this purpose only) in computing benefits for persons who are also eligible to receive pensions based on employment not covered under section 210 of the Act.

Domestic Employee Coverage Threshold

General

The minimum amount a domestic worker must earn so that such earnings are covered under Social Security or Medicare is the domestic employee coverage threshold. For 2005, this threshold is $1,400.

Section 3121(x) of the Internal Revenue Code provides the formula for increasing the threshold.

Computation

Under the formula, the domestic employee coverage threshold amount for 2005 shall be equal to the 1995 amount of $1,000 multiplied by the ratio of the national average wage index for 2003 to that for 1993. If the resulting amount is not a multiple of $100, it shall be rounded to the next lower multiple of $100.

Domestic Employee Coverage Threshold Amount

Multiplying the 1995 domestic employee coverage threshold amount ($1,000) by the ratio of the national average wage index for 2003 ($34,064.95) to that for 1993 ($23,132.67) produces the amount of $1,472.59. We then round this amount to $1,400. Accordingly, the domestic employee coverage threshold amount is $1,400 for 2005.

(Filed by the Office of the Federal Register on October 25, 2004, 8:45 a.m., and published in the issue of the Federal Register for October 26, 2004, 69 F.R. 62497)

2004–46 I.R.B. 841 November 15, 2004