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 $128,400, based on a 1.2% increase in the ‘national average wage’ during 2016.
These changes will affect benefits for currently retired individuals, as well as those contemplating retirement. Employers who sponsor retirement plans that are ‘coordinated’ with Social Security in some fashion will also see an impact on benefits earned and payable under such plans.
IRS will soon release limits applicable to retirement plans for various purposes in 2018, based on a 1.97% increase in CPI-U between the 3rd quarter of 2016 and the 3rd quarter of 2017. Based on this increase, we expect increases in some, but not all, limits applicable to retirement plans in 2018. The table below summarizes our calculations for 2018, along with values for 2017 and 2016:
|Defined benefit dollar limit [415(b)]||$ 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
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.