Compliance News | November 7, 2023
Most indexed IRS dollar limits for retirement plans will increase for 2024.
Retirement plan sponsors will need to make sure to incorporate the new maximums, limits and thresholds into their software programs or spreadsheets for 2024.
In 2024, the wage base for the Social Security tax will increase just over 5 percent, and Social Security benefits will increase 3.2 percent.
The per-participant PBGC premium rates for DB plans subject to ERISA will be higher in 2024. The PBGC’s variable-rate premium for single-employer plans, the per-participant cap on that premium and the PBGC guarantee will also increase.
On November 1, 2023, in Notice 2023-75, the IRS announced the 2024 dollar limits for qualified plans and other tax-favored retirement plans. The table below compares some of the 2024 limits to those limits for 2023.
|Maximum 415(b) annual payout at age 62 from a DB plan1||$265,000||$275,000|
|Maximum 415(c) annual addition to a DC plan account||66,000||69,000|
|Annual elective 401(k), 403(b) and 457(b) deferral limit||22,500||23,000|
|Annual 401(k) and 403(b) catch-up limit (age 50 and older)||7,500||Unchanged|
|Maximum 401(a)(17) annual compensation amount considered for qualified plans and 403(b) plans||330,000||345,000|
|Maximum 401(a)(17) annual compensation amount considered for public sector plans that were able to grandfather the old dollar limit2||490,000||505,000|
|Annual 414(q) compensation threshold to identify highly compensated employees||150,000||155,000|
|Annual 416 top-heavy compensation threshold to identify key employees||215,000||220,000|
|Multiplier for the 415(b) 100%-of-pay limit3||1.084||1.045|
1 There are late-retirement adjustments for benefits starting after age 65.
2 When the Omnibus Budget Reconciliation Act of 1993 reduced the annual compensation limit from $200,000 to $150,000, it allowed public sector plans to avoid applying the reduced compensation limit for grandfathered participants (generally, those who became participants in the plan before January 1, 1996). The grandfathered amount for 2024, as shown in the table above, is the 2023 amount as indexed under 401(a)(17).
3 The 100%-of-pay limit does not apply to multiemployer and public sector plans. See 415(b)(11).
4 The 2023 multiplier is for participants who separate from service before 1/1/23.
5 The 2024 multiplier will be for participants who separate from service before 1/1/24.
The IRS dollar limits for qualified plans and other tax-favored retirement plans are determined using Consumer Price Index (CPI) data. On October 12, 2023, the Bureau of Labor Statistics reported the CPI for All Urban Consumers (CPI-U) increased 3.2 percent over the 12 months that ended September 30, 2023.
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 2022 will be 3.2 percent.
The Social Security wage base and earnings test will also increase for 2023.
Here’s how the 2024 figures compare to the 2023 figures:
|Maximum amount of earnings subject to the Social Security tax1||$160,200||$168,600|
|Social Security National Average Wage Index2||$60,575.07
|Primary Insurance Amount (PIA) formula:3
a) First bend point
b) Second bend point
|Maximum Social Security benefit at Social Security Normal Retirement Age (SSNRA)4||$3,627/month||$3,822/month|
|Early retirement earnings test prior to year of attaining SSNRA (amount that can be earned before benefits are cut)5||$21,240/year||
1 All earnings are subject to the Medicare tax.
2 This amount is not tied to the CPI-W, but rather to earnings as reported to the Social Security Administration (SSA). The 2022 average (which is relevant for 2024) and background is on the SSA website.
3 PIA formula “bend points” are updated each year to reflect changes in the National Average Wage Index. The 2024 bend points are on the SSA website.
4 The maximum Social Security benefit at SSNRA is not tied to the CPI. It is based on the PIA formula (reflecting updated bend points) where a worker’s earnings are at the maximum taxable amount for his or her career. For workers born in 1943–1954, the SSNRA is age 66. Information on how SSNRA varies by birth year is on the SSA website.
5 In the year of attaining SSNRA, the early retirement earnings test is higher. For those attaining SSNRA in 2024, the maximum amount that can be earned before benefits are cut will be $59,520 until the month of attaining SSNRA, up from $56,520 in 2023. This higher earnings test applies only to earnings in months prior to the month of SSNRA attainment. After attaining SSNRA, individuals can receive their full benefits regardless of how much they earn.
A press release on this news, a fact sheet on 2024 Social Security figures and information about how the COLA is calculated are on the Social Security Administration’s website. Additionally, the COLA and other determinations for 2024 were published in the October 23, 2023 Federal Register.
On October 13, 2023, the PBGC published premium rates for 2024.
Based on indexing, the flat-rate premium for single employer plans will increase by $5. The variable-rate premium (VRP) per $1,000 of unfunded vested benefits for 2024 will be the same as for 2023 and the per-participant cap on the VRP will increase by just over 5 percent.
|VRP per $1,000 of unfunded vested benefits||$52||Unchanged|
|Per-participant cap on the variable-rate premium VRP||$652||$686|
See the PBGC’s premium rates webpage for current and historical information.
The flat-rate, per-participant premium for multiemployer plans will increase by $2.
The PBGC’s premium rates webpage also includes information about how the premium for multiemployer plans has changed over time.
Multiemployer plans do not pay a variable-rate premium.
The PBGC single-life annuity maximum guarantee for participants in single-employer pension plans that terminate during 2024 will increase by 5.3 percent.
|Guarantee limit per month||$6,750||$7,107.95|
|Annual guarantee limit||$81,000||$85,295.40|
The PBGC’s monthly maximum guarantee webpage lists the monthly maximum at every age from 45 to 75.
Before the end of this year, plan sponsors should:
Sponsors of 401(k), 403(b) and governmental 457(b) plans might wish to remind participants to increase their salary reduction amounts before the first paycheck of the new year to take advantage of any increase in the deferral and/or age 50+ catch-up deferral limits for the 2024 year.
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.