What is the maximum “annual retirement benefit” in a Defined Benefit plan?
The annual retirement benefit that may be paid to a participant for Plan years ending after 2003 has limitations based on the participant’s age and is subject to an employee’s years of service and years of participation. For ages 62 to 65, the year 2004 limit is the lesser of $165,000 (10 years of participation), or 100% of the participant’s average compensation (10 years of service). Annual cost-of-living adjustments to the $165,000 limit are calculated in a manner similar to the annual cost-of-living increases for Social Security benefits. The cost-of-living adjustment is in $5,000 increments. For ages younger than 62, the dollar limit is reduced according to IRS guidelines, and for ages above 65 the dollar limit is increased according to IRS guidelines.
