October 2011

IRS Announces 2012 Limits for IRAs and Pension Plans

Today the IRS announced to 2012 limits applying to IRAs and pension plans by issuing IRS news release 2011-103.

The IRA contribution limits are unchanged - $5,000 if the individual is younger than age 50 in 2012, and $5,000 if he or she attains age 50 or older in 2012.

The maximum SEP contribution for 2012 will increase to $50,000 from $49,000.

The SIMPLE IRA contribution limits are unchanged for 2012. The maximum elective deferral contribution amount is $11,500 for a person who is younger than age 50 in 2012 and $14,000 if he or she attains age 50 or older in 2012.

The 401(k) elective deferral contribution limits do change for 2012. The maximum elective deferral contribution amount is $17,000 (up from $16,500) for a person who is younger than age 50 in 2012 and $22,500 (up from $22,000) if he or she attains age 50 or older in 2012.

The compensation ranges applying to deductible IRA contributions do increase.

The 2012 compensation range applying to a person whose filing status is single, head of household or qualifying widower is $58,000 - $68,000 (up from $56,000 - $66,000).

The 2012 compensation range applying to a person whose filing status is married/joint return and an active participant is $92,000 - $112,000 (up from $90,000 - $110,000).

The 2012 compensation range applying to a person whose filing status is married/joint return but not an active participant is $173,000 - $183,000 (up from $169,000 - $179,000).

The 2012 compensation range applying to a person whose filing status is married but filing a separate return is unchanged at $0 - $10,000.

The compensation ranges applying to Roth IRA contributions have increased for 2012.

The 2012 compensation range applying to a person whose filing status is single, head of household or qualifying widower is $110,000 - $125,000 up from $107,000 - $112,000.

The 2012 compensation range applying to a person whose filing status is married/joint return is $173,000 - $183,000 up from $169,000 - $179,000.

The 2012 compensation range applying to a person whose filing status is married but filing a separate return is unchanged at $0 - $10,000.

The compensation ranges applying to a savers tax credit also will increase. The new income ranges will be covered in the October issue of the Pension Digest.

CWF will be revising its brochures and IRA Forms to incorporate the 2012 limits.

EBSA to Re-Propose Rule on Definition of a Fiduciary for IRAs and Pension Plans

On September 17, 2011, the Employee Benefits Security Administration (EBSA) of the Department of Labor announced it will re-propose its rule on the definition of a fiduciary. The new proposed rule is expected to be released in early 2012.

On October 22, 2010, the EBSA had published a proposed rule revising a 1975 regulation defining when a person is a “fiduciary” with respect to an IRA or pension plan by reason of giving investment advice for a fee. The 1975 regulation provided for a five-part test to determine if a person was a fiduciary. Under this rule, a person is a fiduciary only if he or she:

1. makes recommendations on investing in, purchasing or selling securities or other property, or gives advice as to their value;
2. on a regular basis;
3. pursuant to a mutual understanding that the advice;
4. will serve as a primary basis for investment decisions; and
5. will be individualized to the particular needs of the IRA or plan.

A person who did not meet all five conditions was and is not a fiduciary. The current EBSA believes there are situations where a person should be a fiduciary even though they are not one under existing law. So a new rule was proposed with the goal to make many more individuals fiduciaries.

On July 26, 2011, Phylis C. Borzi, assistant secretary of labor, EBSA, testified before the House Committee on Education and the Workforce, Subcommittee on Health, Employment, Labor, and Pensions. She testified as to the goals and need for a new definition of fiduciary. There was substantial negative feedback. Even Rep. Barney Frank, D-Mass., the ranking member of the House Financial Services Committee, wrote the DOL and suggested the withdrawal of the proposed rule and the issuance of a new proposed rule to be coordinated with similar actions being taken by the SEC and the CFTC.