David J. Kupstas, FSA, EA, MSEA Chief Actuary
As a result of higher increases to the Consumer Price Index in 2021 than have been seen in recent years, Social Security benefits and qualified retirement plan limits will rise significantly in 2022, according to recent announcements from the IRS and Social Security Administration (SSA). Pension Benefit Guaranty Corporation (PBGC) premiums are set to rise as well.
Most qualified plan limits increase in multiples of $500, $1,000, or $5,000. Often, a limit will rise by only a single step each year, if any. However, for 2022, some limits will rise by as many as three steps.
Discussion about what has increased and by how much is below. These numbers are summarized in this handy chart.
Qualified Plan Limits
According to Notice 2021-61, these limits will rise in 2022:
- The annual addition limitation for defined contribution plans under §415(c)(1)(A) is increased from $58,000 to $61,000.
- The limitation on the annual benefit under a defined benefit plan under §415(b)(1)(A) is increased from $230,000 to $245,000.
- The annual compensation limit under §§401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $290,000 to $305,000.
- The elective deferral limit under §402(g)(1) for 401(k) and certain other plans is increased from $19,500 to $20,500.
- The limitation used in the definition of “highly compensated employee” under §414(q)(1)(B) is increased from $130,000 to $135,000. Note that this will affect the determination of Highly Compensated Employees for the 2023 plan year since HCE status is based on previous year’s pay. HCE status for 2022 will be based on the 2021 compensation threshold of $130,000.
- The dollar limitation under §416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $185,000 to $200,000.
- The deferral limitation under §408(p)(2)(E) for SIMPLE plans is increased from $13,500 to $14,000.
- The dollar amount under §409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period is increased from $1,165,000 to $1,230,000.
- The dollar amount used to determine the lengthening of the 5-year distribution period in an employee stock ownership plan is increased from $230,000 to $245,000.
A few limits will remain at their 2021 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 $6,500. Given the 415(c) increase to $61,000, this means there is effectively an annual addition limit of $67,500 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 compensation amount under §408(k)(2)(C) regarding eligibility for simplified employee pensions (SEPs) remains unchanged at $650.
- The deductible amount under §219(b)(5)(A) for Individual Retirement Account contributions remains unchanged at $6,000.
For plan years beginning in 2022:
- The per-participant flat premium rate is $88 for single-employer plans (up from a 2021 rate of $86).
- The variable-rate premium for single-employer plans is $48 per $1,000 of unfunded vested benefits, up from a 2021 rate of $46.
- The variable-rate premium is capped at $598 times the number of participants (up from a 2021 cap of $582). Plans sponsored by small employers (generally fewer than 25 employees) may be subject to a lower cap.
The rates and cap will continue to be indexed for wage growth annually.
Social Security Payments and Taxable Wage Base
Monthly Social Security and Supplemental Security Income benefits for approximately 70 million Americans will increase 5.9 percent in 2022, according to a Social Security Administration press release from October.
The maximum amount of earnings subject to the Social Security tax (the “taxable wage base”) will increase to $147,000 from $142,800.