Compliance News | December 3, 2020
Some maximum retirement contribution amounts for retirement plans, known as indexed IRS dollar limits, will increase for 2021.
Before the start of the new year, retirement plan sponsors will need to make sure to incorporate the new maximums, limits and thresholds into their software programs or spreadsheets.
In 2021, Social Security benefits and other figures will also increase. The PBGC premium rates for DB plans subject to ERISA will be higher in 2021.
A few more things to consider:
The IRS announced the 2021 dollar limits for qualified plans and other tax-favored retirement plans in plans in Notice 2020-79 announcing the changes, which was issued on October 26, 2020.
The IRS dollar limits for qualified plans and other tax-favored retirement plans are determined using Consumer Price Index (CPI) data. On October 13, 2020, the Bureau of Labor Statistics reported the CPI for All Urban Consumers (CPI-U) increased 1.4 percent over the 12 months that ended September 30, 2020.
When designing retirement plan benefits, plan sponsors in the private sector generally consider Social Security benefits as a key part of their financial wellness programs because all private sector workers who are U.S. citizens or green card holders are covered by Social Security.
In the public sector, some state and local government employees also participate in Social Security.
The Social Security cost of living adjustment (COLA) for 2021 will be 1.4 percent. The Social Security wage base and earnings test will also increase for 2021.
On October 15, 2020, the PBGC published premium rates for 2021.
Based on indexing, the flat-rate premium for single employer plans will increase by $3. The variable-rate premium (VRP) per $1,000 of unfunded vested benefits for 2021 will increase by just over 2 percent and the per-participant cap on the VRP will increase by nearly 4 percent.
See the PBGC’s premium rates for current and historical information.
We expect the flat-rate, per-participant premium for multiemployer plans will increase by $1.
The PBGC also gives information about how the premium for multiemployer plans has changed over time.
Multiemployer plans do not pay a variable-rate premium. There is no dollar limit on the monthly benefit payable under the multiemployer program, only a limit on the benefit rate used to calculate the monthly benefit. The PBGC’s multiemployer guarantee will not change because it is not indexed.
The maximum monthly PBGC guarantee for multiemployer plans is $35.75 per year of service, which means a participant with 30 years of service would receive, at most, a benefit of $1,072.50 per month. For additional information, see the multiemployer benefit guarantees page of the PBGC’s website.
The PBGC single-life annuity maximum guarantee for participants in single employer pension plans that terminate during 2021 to increase by approximately 4 percent.
The PBGC’s monthly maximum guarantee webpage lists the monthly maximum at every age from 45 to 75.
This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.
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