§ 415. Limitations on benefits and contribution under qualified plans
(a)
General rule
(1)
Trusts
A trust which is a part of a pension, profitsharing, or stock bonus plan shall not constitute a qualified trust under section
401
(a) if—
(2)
Section applies to certain annuities and accounts
In the case of—
such a contract, plan, or pension shall not be considered to be described in section
403
(a),
403
(b), or
408
(k), as the case may be, unless it satisfies the requirements of subparagraph (A) or subparagraph (B) of paragraph (1), whichever is appropriate, and has not been disqualified under subsection (g). In the case of an annuity contract described in section
403
(b), the preceding sentence shall apply only to the portion of the annuity contract which exceeds the limitation of subsection (b) or the limitation of subsection (c), whichever is appropriate.
(b)
Limitation for defined benefit plans
(1)
In general
Benefits with respect to a participant exceed the limitation of this subsection if, when expressed as an annual benefit (within the meaning of paragraph (2)), such annual benefit is greater than the lesser of—
(2)
Annual benefit
(A)
In general
For purposes of paragraph (1), the term “annual benefit” means a benefit payable annually in the form of a straight life annuity (with no ancillary benefits) under a plan to which employees do not contribute and under which no rollover contributions (as defined in sections
402
(c),
403
(a)(4),
403
(b)(8),
408
(d)(3), and
457
(e)(16)) are made.
(B)
Adjustment for certain other forms of benefit
If the benefit under the plan is payable in any form other than the form described in subparagraph (A), or if the employees contribute to the plan or make rollover contributions (as defined in sections
402
(c),
403
(a)(4),
403
(b)(8),
408
(d)(3), and
457
(e)(16)), the determinations as to whether the limitation described in paragraph (1) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary by adjusting such benefit so that it is equivalent to the benefit described in subparagraph (A). For purposes of this subparagraph, any ancillary benefit which is not directly related to retirement income benefits shall not be taken into account; and that portion of any joint and survivor annuity which constitutes a qualified joint and survivor annuity (as defined in section
417) shall not be taken into account.
(C)
Adjustment to $160,000 limit where benefit begins before age 62
If the retirement income benefit under the plan begins before age 62, the determination as to whether the $160,000 limitation set forth in paragraph (1)(A) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary, by reducing the limitation of paragraph (1)(A) so that such limitation (as so reduced) equals an annual benefit (beginning when such retirement income benefit begins) which is equivalent to a $160,000 annual benefit beginning at age 62.
(D)
Adjustment to $160,000 limit where benefit begins after age 65
If the retirement income benefit under the plan begins after age 65, the determination as to whether the $160,000 limitation set forth in paragraph (1)(A) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary, by increasing the limitation of paragraph (1)(A) so that such limitation (as so increased) equals an annual benefit (beginning when such retirement income benefit begins) which is equivalent to a $160,000 annual benefit beginning at age 65.
(E)
Limitation on certain assumptions
(i)
For purposes of adjusting any limitation under subparagraph (C) and, except as provided in clause (ii), for purposes of adjusting any benefit under subparagraph (B), the interest rate assumption shall not be less than the greater of 5 percent or the rate specified in the plan.
(ii)
For purposes of adjusting any benefit under subparagraph (B) for any form of benefit subject to section
417
(e)(3), the interest rate assumption shall not be less than the greatest of—
(iii)
For purposes of adjusting any limitation under subparagraph (D), the interest rate assumption shall not be greater than the lesser of 5 percent or the rate specified in the plan.
(iv)
For purposes of this subsection, no adjustments under subsection (d)(1) shall be taken into account before the year for which such adjustment first takes effect.
(v)
For purposes of adjusting any benefit or limitation under subparagraph (B), (C), or (D), the mortality table used shall be the applicable mortality table (within the meaning of section
417
(e)(3)(B)).
(vi)
In the case of a plan maintained by an eligible employer (as defined in section
408
(p)(2)(C)(i)), clause (ii) shall be applied without regard to subclause (II) thereof.
(G)
Special limitation for qualified police or firefighters
In the case of a qualified participant, subparagraph (C) of this paragraph shall not apply.
(H)
Qualified participant defined
For purposes of subparagraph (G), the term “qualified participant” means a participant—
(i)
in a defined benefit plan which is maintained by a State, Indian tribal government (as defined in section
7701
(a)(40)), or any political subdivision thereof,
(ii)
with respect to whom the period of service taken into account in determining the amount of the benefit under such defined benefit plan includes at least 15 years of service of the participant—
(I)
as a full-time employee of any police department or fire department which is organized and operated by the State, Indian tribal government (as so defined), or any political subdivision maintaining such defined benefit plan to provide police protection, firefighting services, or emergency medical services for any area within the jurisdiction of such State, Indian tribal government (as so defined), or any political subdivision, or
(I)
Exemption for survivor and disability benefits provided under governmental plans
Subparagraph (C) of this paragraph and paragraph (5) shall not apply to—
(3)
Average compensation for high 3 years
For purposes of paragraph (1), a participant’s high 3 years shall be the period of consecutive calendar years (not more than 3) during which the participant had the greatest aggregate compensation from the employer. In the case of an employee within the meaning of section
401
(c)(1), the preceding sentence shall be applied by substituting for “compensation from the employer” the following: “the participant’s earned income (within the meaning of section
401
(c)(2) but determined without regard to any exclusion under section
911)”.
(4)
Total annual benefits not in excess of $10,000
Notwithstanding the preceding provisions of this subsection, the benefits payable with respect to a participant under any defined benefit plan shall be deemed not to exceed the limitation of this subsection if—
(5)
Reduction for participation or service of less than 10 years
(A)
Dollar limitation
In the case of an employee who has less than 10 years of participation in a defined benefit plan, the limitation referred to in paragraph (1)(A) shall be the limitation determined under such paragraph (without regard to this paragraph) multiplied by a fraction—
(B)
Compensation and benefits limitations
The provisions of subparagraph (A) shall apply to the limitations under paragraphs (1)(B) and (4), except that such subparagraph shall be applied with respect to years of service with an employer rather than years of participation in a plan.
(6)
Computation of benefits and contributions
The computation of—
(B)
contributions made on behalf of a participant in a defined benefit plan, for purposes of section
401
(a)(4), and
(C)
contributions and benefits provided for a participant in a plan described in section
414
(k), for purposes of this section
shall not be made on a basis inconsistent with regulations prescribed by the Secretary.
(7)
Benefits under certain collectively bargained plans
For a year, the limitation referred to in paragraph (1)(B) shall not apply to benefits with respect to a participant under a defined benefit plan (other than a multiemployer plan)—
(A)
which is maintained for such year pursuant to a collective bargaining agreement between employee representatives and one or more employers,
(C)
under which benefits are determined solely by reference to length of service, the particular years during which service was rendered, age at retirement, and date of retirement,
(D)
which provides that an employee who has at least 4 years of service has a nonforfeitable right to 100 percent of his accrued benefit derived from employer contributions, and
(E)
which requires, as a condition of participation in the plan, that an employee complete a period of not more than 60 consecutive days of service with the employer or employers maintaining the plan.
This paragraph shall not apply to a participant whose compensation for any 3 years during the 10-year period immediately preceding the year in which he separates from service exceeded the average compensation for such 3 years of all participants in such plan. This paragraph shall not apply to a participant for any period for which he is a participant under another plan to which this section applies which is maintained by an employer maintaining this plan. For any year for which the paragraph applies to benefits with respect to a participant, paragraph (1)(A) and subsection (d)(1)(A) shall be applied with respect to such participant by substituting one-half the amount otherwise applicable for such year under paragraph (1)(A) for “$160,000”.
(8)
Social security retirement age defined
For purposes of this subsection, the term “social security retirement age” means the age used as the retirement age under section 216(l) of the Social Security Act, except that such section shall be applied—
(9)
Special rule for commercial airline pilots
(A)
In general
Except as provided in subparagraph (B), in the case of any participant who is a commercial airline pilot, if, as of the time of the participant’s retirement, regulations prescribed by the Federal Aviation Administration require an individual to separate from service as a commercial airline pilot after attaining any age occurring on or after age 60 and before age 62, paragraph (2)(C) shall be applied by substituting such age for age 62.
(10)
Special rule for State, Indian tribal, and local government plans
(A)
Limitation to equal accrued benefit
In the case of a plan maintained for its employees by any State or political subdivision thereof, or by any agency or instrumentality of the foregoing, or a governmental plan described in the last sentence of section
414
(d) (relating to plans of Indian tribal governments), the limitation with respect to a qualified participant under this subsection shall not be less than the accrued benefit of the participant under the plan (determined without regard to any amendment of the plan made after October 14, 1987).
(B)
Qualified participant
For purposes of this paragraph, the term “qualified participant” means a participant who first became a participant in the plan maintained by the employer before January 1, 1990.
(C)
Election
(i)
In general
This paragraph shall not apply to any plan unless each employer maintaining the plan elects before the close of the 1st plan year beginning after December 31, 1989, to have this subsection (other than paragraph (2)(G)).
(ii)
Revocation of election
An election under clause (i) may be revoked not later than the last day of the third plan year beginning after the date of the enactment of this clause. The revocation shall apply to all plan years to which the election applied and to all subsequent plan years. Any amount paid by a plan in a taxable year ending after the revocation shall be includible in income in such taxable year under the rules of this chapter in effect for such taxable year, except that, for purposes of applying the limitations imposed by this section, any portion of such amount which is attributable to any taxable year during which the election was in effect shall be treated as received in such taxable year.
(11)
Special limitation rule for governmental and multiemployer plans
In the case of a governmental plan (as defined in section
414
(d)) or a multiemployer plan (as defined in section
414
(f)), subparagraph (B) of paragraph (1) shall not apply. Subparagraph (B) of paragraph (1) shall not apply to a plan maintained by an organization described in section
3121
(w)(3)(A) except with respect to highly compensated benefits. For purposes of this paragraph, the term “highly compensated benefits” means any benefits accrued for an employee in any year on or after the first year in which such employee is a highly compensated employee (as defined in section 414(q)) of the organization described in section
3121
(w)(3)(A). For purposes of applying paragraph (1)(B) to highly compensated benefits, all benefits of the employee otherwise taken into account (without regard to this paragraph) shall be taken into account.
(c)
Limitation for defined contribution plans
(1)
In general
Contributions and other additions with respect to a participant exceed the limitation of this subsection if, when expressed as an annual addition (within the meaning of paragraph (2)) to the participant’s account, such annual addition is greater than the lesser of—
(2)
Annual addition
For purposes of paragraph (1), the term “annual addition” means the sum of any year of—
For the purposes of this paragraph, employee contributions under subparagraph (B) are determined without regard to any rollover contributions (as defined in sections
402
(c),
403
(a)(4),
403
(b)(8),
408
(d)(3), and
457
(e)(16)) without regard to employee contributions to a simplified employee pension which are excludable from gross income under section
408
(k)(6). Subparagraph (B) of paragraph (1) shall not apply to any contribution for medical benefits (within the meaning of section
419A
(f)(2)) after separation from service which is treated as an annual addition.
(3)
Participant’s compensation
For purposes of paragraph (1)—
(A)
In general
The term “participant’s compensation” means the compensation of the participant from the employer for the year.
(B)
Special rule for self-employed individuals
In the case of an employee within the meaning of section
401
(c)(1), subparagraph (A) shall be applied by substituting “the participant’s earned income (within the meaning of section
401
(c)(2) but determined without regard to any exclusion under section
911)” for “compensation of the participant from the employer”.
(C)
Special rules for permanent and total disability
In the case of a participant in any defined contribution plan—
(iii)
with respect to whom the employer elects, at such time and in such manner as the Secretary may prescribe, to have this subparagraph apply,
the term “participant’s compensation” means the compensation the participant would have received for the year if the participant was paid at the rate of compensation paid immediately before becoming permanently and totally disabled. This subparagraph shall apply only if contributions made with respect to amounts treated as compensation under this subparagraph are nonforfeitable when made. If a defined contribution plan provides for the continuation of contributions on behalf of all participants described in clause (i) for a fixed or determinable period, this subparagraph shall be applied without regard to clauses (ii) and (iii).
(6)
Special rule for employee stock ownership plans
If no more than one-third of the employer contributions to an employee stock ownership plan (as described in section
4975
(e)(7)) for a year which are deductible under paragraph (9) of section
404
(a) are allocated to highly compensated employees (within the meaning of section
414
(q)), the limitations imposed by this section shall not apply to—
(A)
forfeitures of employer securities (within the meaning of section
409) under such an employee stock ownership plan if such securities were acquired with the proceeds of a loan (as described in section
404
(a)(9)(A)), or
(B)
employer contributions to such an employee stock ownership plan which are deductible under section
404
(a)(9)(B) and charged against the participant’s account.
The amount of any qualified gratuitous transfer (as defined in section
664
(g)(1)) allocated to a participant for any limitation year shall not exceed the limitations imposed by this section, but such amount shall not be taken into account in determining whether any other amount exceeds the limitations imposed by this section.
(7)
Special rules relating to church plans
(A)
Alternative contribution limitation
(i)
In general
Notwithstanding any other provision of this subsection, at the election of a participant who is an employee of a church or a convention or association of churches, including an organization described in section
414
(e)(3)(B)(ii), contributions and other additions for an annuity contract or retirement income account described in section
403
(b) with respect to such participant, when expressed as an annual addition to such participant’s account, shall be treated as not exceeding the limitation of paragraph (1) if such annual addition is not in excess of $10,000.
(B)
Number of years of service for duly ordained, commissioned, or licensed ministers or lay employees
For purposes of this paragraph—
(i)
all years of service by—
as an employee of a church, a convention or association of churches, including an organization described in section
414
(e)(3)(B)(ii), shall be considered as years of service for 1 employer, and
(C)
Foreign missionaries
In the case of any individual described in subparagraph (B) performing services outside the United States, contributions and other additions for an annuity contract or retirement income account described in section
403
(b) with respect to such employee, when expressed as an annual addition to such employee’s account, shall not be treated as exceeding the limitation of paragraph (1) if such annual addition is not in excess of $3,000. This subparagraph shall not apply with respect to any taxable year to any individual whose adjusted gross income for such taxable year (determined separately and without regard to community property laws) exceeds $17,000.
(d)
Cost-of-living adjustments
(1)
In general
The Secretary shall adjust annually—
(B)
in the case of a participant who is separated from service, the amount taken into account under subsection (b)(1)(B), and
for increases in the cost-of-living in accordance with regulations prescribed by the Secretary.
(2)
Method
The regulations prescribed under paragraph (1) shall provide for—
(3)
Base period
For purposes of paragraph (2)—
(A)
$160,000 amount
The base period taken into account for purposes of paragraph (1)(A) is the calendar quarter beginning July 1, 2001.
(B)
Separations after December 31, 1994
The base period taken into account for purposes of paragraph (1)(B) with respect to individuals separating from service with the employer after December 31, 1994, is the calendar quarter beginning July 1 of the calendar year preceding the calendar year in which such separation occurs.
(C)
Separations before January 1, 1995
The base period taken into account for purposes of paragraph (1)(B) with respect to individuals separating from service with the employer before January 1, 1995, is the calendar quarter beginning October 1 of the calendar year preceding the calendar year in which such separation occurs.
(4)
Rounding
(A)
$160,000 amount
Any increase under subparagraph (A) of paragraph (1) which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000. This subparagraph shall also apply for purposes of any provision of this title that provides for adjustments in accordance with the method contained in this subsection, except to the extent provided in such provision.
(f)
Combining of plans
(1)
In general
For purposes of applying the limitations of subsections (b) and (c)—
(2)
Exception for multiemployer plans
Notwithstanding paragraph (1) and subsection (g), a multiemployer plan (as defined in section
414
(f)) shall not be combined or aggregated—
(g)
Aggregation of plans
Except as provided in subsection (f)(3),[1] the Secretary, in applying the provisions of this section to benefits or contributions under more than one plan maintained by the same employer, and to any trusts, contracts, accounts, or bonds referred to in subsection (a)(2), with respect to which the participant has the control required under section
414
(b) or (c), as modified by subsection (h), shall, under regulations prescribed by the Secretary, disqualify one or more trusts, plans, contracts, accounts, or bonds, or any combination thereof until such benefits or contributions do not exceed the limitations contained in this section. In addition to taking into account such other factors as may be necessary to carry out the purposes of subsection (f), the regulations prescribed under this paragraph shall provide that no plan which has been terminated shall be disqualified until all other trusts, plans, contracts, accounts, or bonds have been disqualified.
(i)
Records not available for past periods
Where for the period before January 1, 1976, or (if later) the first day of the first plan year of the plan, the records necessary for the application of this section are not available, the Secretary may by regulations prescribe alternate methods for determining the amounts to be taken into account for such period.
(j)
Regulations; definition of year
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including, but not limited to, regulations defining the term “year” for purposes of any provision of this section.
(k)
Special rules
(1)
Defined benefit plan and defined contribution plan
For purposes of this title, the term “defined contribution plan” or “defined benefit plan” means a defined contribution plan (within the meaning of section
414
(i)) or a defined benefit plan (within the meaning of section
414
(j)), whichever applies, which is—
(2)
Contributions to provide cost-of-living protection under defined benefit plans
(A)
In general
In the case of a defined benefit plan which maintains a qualified cost-of-living arrangement—
(i)
any contribution made directly by an employee under such an arrangement shall not be treated as an annual addition for purposes of subsection (c), and
(ii)
any benefit under such arrangement which is allocable to an employer contribution which was transferred from a defined contribution plan and to which the requirements of subsection (c) were applied shall, for purposes of subsection (b), be treated as a benefit derived from an employee contribution (and subsection (c) shall not again apply to such contribution by reason of such transfer).
(B)
Qualified cost-of-living arrangement defined
For purposes of this paragraph, the term “qualified cost-of-living arrangement” means an arrangement under a defined benefit plan which—
(i)
provides a cost-of-living adjustment to a benefit provided under such plan or a separate plan subject to the requirements of section
412, and
(C)
Determination of amount of benefit
An arrangement meets the requirement of this subparagraph only if the cost-of-living adjustment of participants is based—