The Internal Revenue Service has announced the new cost-of-living adjustments for retirement plans for 2013. Several key limits will change next year. Employers should take note of the changes and consider how they will affect the administration of their retirement plans.
- The limitation on the exclusion for elective deferrals, which applies to 401(k) plans and 403(b) annuities, increases from $17,000 to $17,500. However, the limitation for catch-up contributions to an applicable employer plan for individuals aged 50 or over remains the same at $5,500 (and $2,500 remains the limit for SIMPLE arrangements).
- The annual addition limitation for defined contribution plans continues to increase slightly from $50,000 to $51,000. For defined benefit plans, the limitation on the annual benefit amount increases from $200,000 to $205,000.
- The annual compensation limit on maximum compensation that may be considered changes from $250,000 to $255,000.
- For employee stock ownership plans, the dollar amount for determining the maximum account balance subject to a five-year distribution period increases from $1,015,000 to $1,035,000; also, the dollar amount used to determine the lengthening of the five-year distribution period changes from $200,000 to $205,000.
- The annual compensation limitation for eligible participants in certain governmental plans that allow cost-of-living adjustments to the compensation limitation under the plan to be taken into account increases from $370,000 to $380,000.
- The contribution limitation for SIMPLE arrangements increases from $11,500 to $12,000. The compensation amount requirement for Simplified Employee Pensions (SEPs) does not change from the current $550.
- The limitation used in the definition of “highly compensated employee” remains unchanged at $115,000. The dollar limitation for a “key employee” in a top-heavy plan also remains unchanged at $165,000.
In addition, the Social Security Administration recently announced that the wage base for computing the Social Security tax (OASDI) in 2013 will increase from $110,100 to $113,700. This represents about a 3.27% increase.