The Social Security Administration just announced benefit increases effective in 2022. Current retirees will receive a cost-of-living increase, beginning in January 2022, of 5.9%, reflecting the increase in CPI-W between the 3rd quarter of 2020 and the 3rd quarter of 2021, the largest inflation adjustment in 40 years.
In addition, the maximum amount of earnings subject to Social Security tax will increase in 2022 from $142,800 to $147,000, based on a 2.8% increase in the ‘national average wage’ during 2020.
These changes will affect benefits for currently retired individuals, as well as those contemplating retirement. Employers who sponsor retirement plans that are ‘coordinated’ with Social Security in some fashion will also see an impact on benefits earned and payable under such plans.
IRS will soon release limits applicable to retirement plans for various purposes in 2022, based on a 5.34% increase in CPI-U between the 3rd quarter of 2020 and the 3rd quarter of 2021. Based on this increase, we expect increases in most limits applicable to retirement plans in 2022. The table below summarizes our calculations for 2022, along with values for 2021 and 2020:
|Defined benefit dollar limit [415(b)]||$ 245,000||$ 230,000||$ 230,000|
|Defined contribution dollar limit [415(c)]||61,000||58,000||57,000|
|Qualified plan pay cap [401(a)(17)]||305,000||290,000||285,000|
|401(k) deferral limit [402(g)]||20,500||19,500||19,500|
|Catch-up contribution limit [414(v)]||6,500||6,500||6,500|
|Highly compensated threshold [414(q)]||135,000||130,000||130,000|
The increase in national average wages also drives some key amounts used in calculating PBGC premiums. Relevant amounts for 2022 (along with 2021 and 2020) are summarized below:
|PBGC premium amounts||2022||2021||2020|
|Headcount premium||$ 88||$ 86||$ 83|
|Variable premium (% of UVB)||4.8%||4.6%||4.5%|
|Variable premium cap||$ 598||$ 582||$ 561|
Elements of PBGC premium calculations are indexed to increases in the national average wage. 2022 amounts reflect a 2.8% increase in the national average wage during 2020.