Admit it, you’ve been wondering all year whether the 401(k) deferral limit was going to rise in 2018 or if Social Security benefits would increase. Maybe you even started a pool at your office. Your wait is now over. The IRS, PBGC, and Social Security Administration have all released their 2018 cost-of-living adjustments and other useful numbers. Many of these can be found here.
Some IRS Limits Have Modest Increases, Others Are Unchanged
According to Notice 2017-64, these limits will rise in 2018:
- The elective deferral limit under §402(g)(1) for 401(k) and certain other plans is increased from $18,000 to $18,500.
- The annual addition limitation for defined contribution plans under §415(c)(1)(A) is increased from $54,000 to $55,000.
- The annual compensation limit under §§401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $270,000 to $275,000.
- The limitation on the annual benefit under a defined benefit plan under §415(b)(1)(A) is increased from $215,000 to $220,000.
These limits will remain at their 2017 levels:
- The dollar limitation under §414(v)(2)(B)(i) for catch-up contributions to 401(k) plans for individuals aged 50 or over remains unchanged at $6,000. Given the 415(c) increase to $55,000, this means there is effectively an annual addition limit of $61,000 for some participants 50 and older.
- The dollar limitation under §414(v)(2)(B)(ii) for catch-up contributions to SIMPLE IRA or 401(k) plans for individuals aged 50 or over remains unchanged at $3,000.
- The limitation used in the definition of "highly compensated employee" under §414(q)(1)(B) remains unchanged at $120,000.
- The dollar limitation under §416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan remains unchanged at $175,000.
- The compensation amount under §408(k)(2)(C) regarding eligibility for simplified employee pensions (SEPs) remains unchanged at $600.
- The deferral limitation under §408(p)(2)(E) for SIMPLE plans remains unchanged at $12,500.
- The deductible amount under §219(b)(5)(A) for Individual Retirement Account contributions remains unchanged at $5,500.
PBGC Premiums Set to Rise
For plan years beginning in 2018:
- The per-participant flat premium rate is $74 for single-employer plans (up from a 2017 rate of $69).
- The variable-rate premium for single-employer plans is $38 per $1,000 of unfunded vested benefits, up from a 2017 rate of $34.
- The variable-rate premium is capped at $523 times the number of participants (up from a 2017 cap of $517). Plans sponsored by small employers (generally fewer than 25 employees) may be subject to a lower cap.
The flat and variable-rate premiums were no surprise. The $74 flat premium was spelled out in The Bipartisan Budget Act of 2015 (BBA 2015). For the variable-rate premium, the $4 increase was provided in BBA 2015. Although the variable premium rate is subject to indexing in addition to the BBA 2015 increase, indexing had no effect for 2018.
Social Security Benefits Get a 2% Bump
Monthly Social Security and Supplemental Security Income benefits for more than 66 million Americans will increase 2.0 percent in 2018, the Social Security Administration announced this month.
The maximum amount of earnings subject to the Social Security tax (the “taxable wage base”) will increase to $128,400 from $127,200.
Note: This post was updated on December 1, 2017 to reflect a revision to the 2018 Social Security Taxable Wage Base.