Compliance News | December 3, 2020

Maximum Retirement Contribution Amounts in 2021

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.

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Other key takeaways

A few more things to consider:

  • The IRS deferral and catch-up limits for DC plans will not change.
  • The wage base for the Social Security tax will increase 3.75 percent, and Social Security benefits will increase 1.4 percent.
  • The PBGC’s variable-rate premium for single-employer plans, the per-participant cap on that premium and the PBGC guarantee will increase.

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.

Do you know how to use the new numbers?

You'll need to incorporate the new maximum retirement contribution amounts, limits and thresholds for nondiscrimination testing and benefit calculations. 

If you're unsure how, we can help. 

You should also make sure that third-party service providers are aware of changes applicable to your plan and are on track to implement them in time.

Have questions about that too? Get in touch. 

We value your privacy. We'll never share your data with anybody.

Social security benefits: key updates

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. 

PBGC premiums for plans covered by ERISA

On October 15, 2020, the PBGC published premium rates for 2021.

Premiums for single-employer plans

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.

Premium for multiemployer plans

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.

PBGC guarantee limits for single-employer plans

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.

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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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