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The Social Security Administration just announced benefit increases effective in 2025. Current retirees will receive a cost-of-living increase, beginning in January 2025, of 2.5%, reflecting the increase in CPI-W between the 3rd quarter of 2023 and the 3rd quarter of 2024.
In addition, the maximum amount of earnings subject to Social Security tax will increase in 2025 from $168,600 to $176,100, based on a 4.4% increase in the ‘national average wage’ during 2023.
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 2025, based on a 2.62% increase in CPI-U between the 3rd quarter of 2023 and the 3rd quarter of 2024. Based on this increase, we expect increases in most limits applicable to retirement plans in 2024. The table below summarizes our calculations for 2025, along with values for 2024 and 2023:
| IRS limits | 2025* | 2024 | 2023 |
| Defined benefit dollar limit [415(b)] | $ 280,000 | $ 275,000 | $ 265,000 |
| Defined contribution dollar limit [415(c)] | 70,000 | 69,000 | 66,000 |
| Qualified plan pay cap [401(a)(17)] | 350,000 | 345,000 | 330,000 |
| 401(k) deferral limit [402(g)] | 23,500 | 23,000 | 22,500 |
| Catch-up contribution limit [414(v)] | 7,500 | 7,500 | 7,500 |
| Highly compensated threshold [414(q)] | 160,000 | 155,000 | 150,000 |
*Based on October Three calculations
The increase in national average wages also drives some key amounts used in calculating PBGC premiums. Relevant amounts for 2025 (along with 2024 and 2023) are summarized below:
| PBGC premium amounts | 2025 | 2024 | 2023 |
| Headcount premium | $ 106 | $ 101 | $ 96 |
| Variable premium (% of UVB)* | 5.2% | 5.2% | 5.2% |
| Variable premium cap | $ 717 | $ 686 | $ 652 |
*Capped at 5.2% for 2023 and later
The PBGC headcount premium and variable premium cap are indexed to increases in the national average wage. 2024 amounts reflect a 4.4% increase in the national average wage during 2023.