Are there limits on the benefits a participant may receive on an annual basis?
Yes. In the case of 401(k) plans, the IRS establishes the dollar maximum a participant may defer each year. For example, the dollar maximum in 2007 is $15,500. If the document permits, participants who are at least age 50 by the end of the plan year may defer an additional $5,000 as a catch-up contribution. Although it is less common today, the plan document may also impose a percentage of salary restriction on the amount a participant can defer (for example, limiting the deferral to no more than x% of salary). Each year the IRS will also establish the limit a participant may receive for the plan year from all sources (salary deferrals and all Employer contributions and reallocated forfeitures). This is known as the 415 limit and the limit for 2007 is $45,000. Catch up contributions made by older participants are not counted against the limit, so that a participant eligible to make catch-up contributions may effectively receive $50,000 in allocations in 2007.
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