2016 Increases for Retirement plans, Social Security
The Social Security Administration just announced benefit increases, or lack thereof, effective in 2016. For the second time in the past six years, current retirees will not receive a cost-of-living increase in 2016, due to a decline in the CPI-W between the third quarter of 2014 and the third quarter of 2015.
Since there will be no cost-of-living increase next year, the maximum amount of earnings subject to Social Security tax will remain at $118,500 during 2016, (although the ‘bend points’ used to calculate Social Security benefits will increase by 3.5% in 2016, based on a corresponding increase in the ‘national average wage’ during 2014.)
These changes will affect benefits for currently retired individuals, as well as those contemplating retirement. Employers who sponsor retirement plans that are ‘coordinated’ with Social Security in some fashion will also see an impact on benefits earned and payable under such plans.
IRS will soon release limits applicable to retirement plans for various purposes in 2016, based on the 0.11% increase in CPI-U between the third quarter of 2014 and the third quarter of 2015. Based on this tiny increase, we expect no increases in key 2016 limits. The table below summarizes our calculations for 2016, along with values for 2015 and 2014:
|Defined benefit dollar limit [415(b)]||$ 210,000||$ 210,000||$ 210,000|
|Defined contribution dollar limit [415(c)]||53,000||53,000||52,000|
|Qualified plan pay cap [401(a)(17)]||265,000||265,000||260,000|
|401(k) deferral limit [402(g)]||18,000||18,000||17,500|
|Catch-up contribution limit [414(v)]||6,000||6,000||5,500|
|Highly compensated threshold [414(q)]||120,000||120,000||115,000|
* Based on October Three calculations
The increase in national average wages also drives some key amounts used in calculating PBGC premiums. Relevant amounts for 2016 (along with 2015 and 2014) are summarized below:
|PBGC premium amounts||2016||2015||2014|
|Headcount premium||$ 64||$ 57||$ 49|
|Variable premium (% of UVB)*||3.0%||2.4%||1.4%|
|Variable premium cap||$ 500||$ 418||$ 412|
* 2016 based on October Three calculations
We note that 2016 headcount premium ($64) and variable premium cap ($500) are set by law (but will increase in future years), while the variable premium rate (3.0%) is based on the 3.5% increase in national average wages during 2014.