2018 Increases for Retirement Plans, Social Security

October 15, 2017

The Social Security Administration just announced benefit increases effective in 2018. Current retirees will receive a cost-of-living increase, beginning in January 2018, of 2.0%, reflecting the increase in CPI-W between the 3rd quarter of 2016 and the 3rd quarter of 2017.

In addition, the maximum amount of earnings subject to Social Security tax will increase in 2018 from $127,200 to $128,400, based on a 1.2% increase in the ‘national average wage’ during 2016.

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

IRS will soon release limits applicable to retirement plans for various purposes in 2018, based on a 1.97% increase in CPI-U between the 3rd quarter of 2016 and the 3rd quarter of 2017. Based on this increase, we expect increases in some, but not all, limits applicable to retirement plans in 2018. The table below summarizes our calculations for 2018, along with values for 2017 and 2016:

IRS limits 2018* 2017 2016
Defined benefit dollar limit [415(b)] $ 220,000 $ 215,000 $ 210,000
Defined contribution dollar limit [415(c)] 55,000 54,000 53,000
Qualified plan pay cap [401(a)(17)] 275,000 270,000 265,000
401(k) deferral limit [402(g)] 18,500 18,000 18,000
Catch-up contribution limit [414(v)] 6,000 6,000 6,000
Highly compensated threshold [414(q)] 120,000 120,000 120,000

* Based on October Three calculations

PBGC amounts

The increase in national average wages also drives some key amounts used in calculating PBGC premiums. Relevant amounts for 2018 (along with 2017 and 2016) are summarized below:

PBGC premium amounts 2018 2017 2016
Headcount premium $ 74 $ 69 $ 64
Variable premium (% of UVB)* 3.8% 3.4% 3.0%
Variable premium cap* $ 523 $ 517 $ 500

* 2018 based on October Three calculations

We note that 2018 headcount premium ($74) is set by law (but will increase in future years), while the variable premium rate (3.8%) and variable premium cap ($523) are based on the 1.2% increase in national average wages during 2016.

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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