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Cost-of-living adjustments affect dollar limits for defined contribution and defined benefit retirement plans
Update: 401(k) Plan Limits Announced for 2014
The IRS released its official defined contriubtion and defined benefit retirement plan limits for 2014 at the end of October 2013.
For 2014, 401(k) elective deferrals remain at
$17,500 with the catch-up contribution limit staying at
$5,500; the annual contribution limit from all sources rises to
$52,000 from $51,000; the amount of employee compensation that can be considered in calculating contributions to defined contribution plans increases to
$260,000 from $255,000; and the limit used in the definition of a highly compensated employee for the purpose of 401(k) nondiscrimination testing remains unchanged at
SHRM Online article "For 2014, IRS Issues 401(k) and Pension Plan Limits."
2013 Plan Limits
The U.S. Internal Revenue Service (IRS) on Oct. 18, 2012,
announced cost-of-living adjustments (COLAs) affecting dollar limits for defined contribution and defined benefit retirement plans and other retirement-related items for tax year 2013. Many plan limits on contributions and benefits will rise because increases in the cost-of-living index met the statutory thresholds that trigger their adjustment.
Below are the
key changes effective Jan. 1, 2013.
Defined Contribution Plans
To help employees take full advantage of their tax-deferred savings opportunities in the coming year, inform them of the increase to the limit on elective deferral contributions before year-end, advises an alert from law firm Drinker Biddle & Reath LLP. "Many employees may have elected to make the maximum deferral amount applying the 2012 limit, and they may wish to make corresponding adjustments before the new year" for 2013 deferrals, the alert noted.
Defined Contribution Plan LimitsFor 401(k), 403(b) and most 457 plans, below are the COLA increases for dollar limits on benefits and contributions.
Maximum elective deferral by employee.
Catch-up contribution (age 50 and older during 2012).
Defined contribution maximum deferral (employer/employee combined).
Employee annual compensation limit for calculating contributions.
Annual compensation of "key employees" in a top-heavy plan.
Annual compensation of "highly compensated employee" in a top-heavy plan.
"The Consumer Price Index for all Urban Consumers (CPI-U) is the gauge used to determine if limits increase," Anthony Agbay, president of The Agbay Group, a benefits consultancy, pointed out to
SHRM Online. "The challenge with the age 50 and over catch-up is the amount is indexed in increments of $500, which is a large percentage of $5,500 (9 percent). This means the CPI-U has to increase over 9 percent for this limit to be raised. In comparison, for the primary employee deferral limit (known as the section 402(g) limit), the CPI-U only needs to increase by more than 3 percent for that limit to increase."
Defined Benefit Plans
Other Workplace Retirement Plan Limits
Non-401(k) Workplace Retirement Plan Limits
SIMPLE employee deferrals
SIMPLE catch-up deferrals
SEP minimum compensation
SEP annual compensation limit
ESOP maximum account balance subject to the five-year distribution period
Social Security wage base
Individual Retirement Accounts
Other 2013 Benefit Changes
is an online editor/manager for SHRM.
SHRM Online Compensation Discipline
SHRM Online Retirement Plans Resource Page
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