2015 Increases for Retirement Plans, Social Security
The Social Security Administration recently announced benefit increases effective in 2014. Current retirees will receive a cost-of-living increase, beginning in January 2015, of 1.7%, reflecting the increase in CPI-W between the third quarter of 2013 and the third quarter of 2014.
In addition, the maximum amount of earnings subject to Social Security tax will increase in 2015 from $117,000 to $118,500, based on a 1.3% increase in the ‘national average wage’ during 2013.
These changes will affect benefits for currently retired individuals, as well as those contemplating retirement. Employers who sponsor retirement plans that are ‘coordinated’ with Social Security in some fashion will also see an impact on benefits earned and payable under such plans.
IRS limits
In related news, the IRS has released limits applicable to retirement plans for various purposes in 2015, based on the increase in CPI-U between the third quarter of 2013 and the third quarter of 2014, during which time the index increased 1.78%. We have summarized key 2015 limits below, along with values for 2014 and 2013:
IRS Limits | 2015 | 2014 | 2013 |
Defined benefit dollar limit [ 415(b) ] | $210,000 | $210,000 | $205,000 |
Defined contribution dollar limit [ 415(c) ] | $53,000 | $52,000 | $51,000 |
Qualified plan pay cap [ 401(a)(17) ] | $265,000 | $260,000 | $255,000 |
401(k) deferral limit [ 402(g) ] | $18,000 | $17,500 | $17,500 |
Catch-up contribution limit [ 414(v) ] | $6,000 | $5,500 | $5,500 |
Highly compensated threshold [ 414(q) ] | $120,000 | $115,000 | $115,000 |
PBGC amounts
The increase in national average wages also drives some key amounts used in calculating PBGC premiums. Relevant amounts for 2015 (along with 2014 and 2013) are summarized below:
PBGC premium amounts | 2015 | 2014 | 2013 |
Headcount premium | $57 | $49 | $42 |
Variable premium (% of UVB) | 2.4% | 1.4% | 0.9% |
Variable premium cap (per participant) | $418 | $412 | $400 |
We note that 2016 premium amounts are slated to increase independently of the indexing amounts, with headcount premiums set to rise to $64, the variable premium rate to 2.9% (perhaps 3.0%), and the variable premium cap increasing to $500 per participant.