David J. Kupstas, FSA, EA, MSEA Chief Actuary
When the new Social Security benefit amounts and qualified retirement plan limits are announced in early fall each year, usually not all of them will rise in any given year because of how the limits are rounded down to the next lower multiple. Due to the high inflation present in our economy, 2023 will be the rare year when all of the limits we follow are going up. Some are going up at a rate not seen in a generation, if ever.
Below is a discussion of the different limits and how much they are going up next year. These new limits are summarized here.
Qualified Plan Limits
According to Notice 2022-55, these limits will rise in 2023:
- The limitation on the annual benefit under a defined benefit plan under §415(b)(1)(A) is increased from $245,000 to $265,000.
- The annual addition limitation for defined contribution plans under §415(c)(1)(A) is increased from $61,000 to $66,000.
- The elective deferral limit under §402(g)(1) for 401(k) and certain other plans is increased from $20,500 to $22,500.
- The dollar limitation under §414(v)(2)(B)(i) for catch-up contributions to 401(k) plans for individuals aged 50 or over is increased from $6,500 to $7,500. Given the 415(c) increase to $66,000, this means there is effectively an annual addition limit of $73,500 for some participants 50 and older.
- The annual compensation limit under §§401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $305,000 to $330,000.
- The dollar limitation under §416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $200,000 to $215,000.
- The limitation used in the definition of “highly compensated employee” under §414(q)(1)(B) is increased from $135,000 to $150,000. Note that this will affect the determination of Highly Compensated Employees for the 2024 plan year since HCE status is based on previous year’s pay. HCE status for 2023 will be based on the 2022 compensation threshold of $135,000.
- The deferral limitation under §408(p)(2)(E) for SIMPLE plans is increased from $14,000 to $15,500.
- 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 is increased from $3,000 to $3,500.
- 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 $1,230,000 to $1,330,000.
- The dollar amount used to determine the lengthening of the 5-year distribution period in an employee stock ownership plan is increased from $245,000 to $265,000.
- The compensation amount under §408(k)(2)(C) regarding eligibility for simplified employee pensions (SEPs) is increased from $650 to $750.
- The deductible amount under §219(b)(5)(A) for Individual Retirement Account contributions is increased from $6,000 to $6,500. There is a catchup contribution of $1,000 for workers aged 50 and over which is not subject to cost-of-living increases.
According to the PBGC, for plan years beginning in 2023:
- The per-participant flat premium rate is $96 for single-employer plans (up from a 2022 rate of $88).
- The variable-rate premium for single-employer plans is $52 per $1,000 of unfunded vested benefits, up from a 2022 rate of $48.
- The variable-rate premium is capped at $652 times the number of participants (up from a 2022 cap of $598). 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 8.7 percent in 2022, according to a Social Security Administration press release from earlier this month.
The maximum amount of earnings subject to the Social Security tax (the “taxable wage base”) will increase to $160,200 from $147,000.