April 30, 2007 – The IRS published Final Regulations on Limitations on Benefits and Contributions Under Qualified Plans, T.D. 9319, also known as the Final 415 Regs. The last time the IRS released comprehensive regulations pursuant to Code section 415 was on Jan. 7, 1981. These regulations update those 1981 comprehensive regulations and incorporate guidance the IRS issued in the form of notices and revenue rulings between Jan. 7, 1981 and April 30, 2007 along with statutory changes made by Congress during this time frame.
Some of the changes made by Congress during this time frame include:
- The current statutory limitations under sections 415(b)(1)(A) and 415(c)(1) applicable for defined benefit and defined contribution plans, respectively, as most recently amended by EGTRRA.
- Changes to the rules for age adjustments to the applicable limitations under defined benefit plans, under which the dollar limitation is adjusted for commencement before age 62 or after age 65.
- Changes to the rules, including specification of parameters, for benefit adjustments under defined benefit plans.
- The phase-in of the dollar limitation under section 415(b)(1)(A) over 10 years of participation, as added by TRA ’86.
- The addition of the section 401(a)(17) limitation on compensation that is permitted to be taken into account in determining plan benefits, as added by TRA ’86, and the interaction of this requirement with the limitations under section 415.
- Exceptions to the compensation-based limitation under section 415(b)(1)(B) for governmental plans and multiemployer plans.
- Changes to the aggregation rules under section 415(f) under which multiemployer plans are not aggregated with single-employer plans for purposes of applying the compensation-based limitation of section 415(b)(1)(B) to a single-employer plan.
- The repeal under SBJPA of the section 415(e) combined limitation on participation in a defined benefit plan and a defined contribution plan.
- The changes to section 415(c) that were made in conjunction with the repeal under EGTRRA of the exclusion allowance under section 403(b)(2).
- The current rounding and base period rules for annual cost-of-living adjustments pursuant to section 415(d), as most recently amended in EGTRRA and WFTRA.
- Changes to section 415(c) under which certain types of arrangements are no longer subject to the limitations of section 415(c) (such as individual retirement accounts other than SEPs) and other types of arrangements have become subject to the limitations of section 415(c) (such as certain individual medical accounts).
- The inclusion in compensation (for purposes of section 415) of certain salary reduction amounts not included in gross income.
- The modification for distributions with annuity starting dates in plan years beginning in years 2004 and 2005 made by PFEA with respect to the interest rate assumptions in section 415(b)(2)(E) for converting certain forms of benefits to an actuarially equivalent straight life annuity.
- The following modifications to section 415 that were made by PPA ’06:
- (i) changes to the interest rate assumptions in section 415(b)(2)(E) that are used for converting certain forms of benefits to an equivalent straight life annuity (section 303 of PPA ’06);
- (ii) elimination of the active participation requirement in determining a participant’s high-3 years of service in section 415(b)(3) (section 832 of PPA ’06);
- (iii) exemption from the section 415(b)(1)(B) compensation limit for certain benefits provided under a defined benefit plan maintained by an organization described in section 3121(w)(3)(A) (section 867 of PPA ’06); and
- (iv) expansion of the definition of qualified participant in section 415(b)(2)(H) to include certain participants in a defined benefit plan maintained by an Indian tribal government (section 906(b) of PPA ’06).
The regulations are effective April 7, 2007. The principal authors of these regs. are Vernon S. Carter, Linda S.F. Marshall, and Christopher A. Crouch.