2015 Increases for Retirement Plans, Social Security

October 28, 2014

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.

October Three Consulting, LLC is a full service actuarial, consulting and technology firm that is a leading force behind the reemergence of defined benefit plans across the country. A primary focus of the consultants at October Three is the design and administration of comprehensive retirement benefits to employees that minimize the financial risks and volatility concerns employers face.

Through effective plan design strategies October Three believes successful financial outcomes are achievable for employers and employees alike. A critical element of those strategies is the ReDB® plan design. The ReDefined Benefit Plan® represents an entirely new, design-based approach to retirement and to the management of both the employer’s and the employee’s financial risk, focusing on maximizing financial efficiency and employee value.

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