2017 Increases for Retirement Plans, Social Security
The Social Security Administration just announced benefit increases effective in 2017. Current retirees will receive a cost-of-living increase, beginning in January 2017, of 0.3%, reflecting the increase in CPI-W between the 3rd quarter of 2014 (which was higher than the 3rd quarter of 2015) and the 3rd quarter of 2016.
In addition, the maximum amount of earnings subject to Social Security tax will increase in 2017 from $118,500 to $127,200, based on a 3.5% increase in the ‘national average wage’ during 2015. The 7.3% jump includes a ‘catch-up’ from last year that was deferred due to no cost-of-living increase in 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 2017, based on a 1.09% increase in CPI-U between the 3rd quarter of 2015 and the 3rd quarter of 2016. Based on this increase, we expect increases in some, but not all, limits applicable to retirement plans in 2017. The table below summarizes our calculations for 2017, along with values for 2016 and 2015:
IRS Limits | 2017 * | 2016 | 2015 |
Defined benefit dollar limit [ 415(b) ] | $215,000 | $210,000 | $210,000 |
Defined contribution dollar limit [ 415(c) ] | 54,000 | 53,000 | 53,000 |
Qualified plan pay cap [ 401(a)(17) ] | 270,000 | 265,000 | 265,000 |
401(k) deferral limit [ 402(g) ] | 18,000 | 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 2017 (along with 2016 and 2015) are summarized below:
PBGC premium amounts | 2017 | 2016 | 2015 |
Headcount premium | $69 | $64 | $57 |
Variable premium (% of UVB) * | 3.4% | 3.0% | 2.4% |
Variable premium cap * | $517 | $500 | $418 |
* 2017 based on October Three calculations
We note that 2017 headcount premium ($69) is set by law (but will increase in future years), while the variable premium rate (3.4%) and variable premium cap ($517) are based on the 3.5% increase in national average wages during 2015.
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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