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2016 Cost of Living Adjustments for Retirement Plans

The Internal Revenue Service recently announced its cost-of-living adjustments applicable to dollar limitations for retirement plans and Social Security generally effective for Tax Year 2016 (see IR-2015-118 ). Most notably, the limitation on annual salary deferrals into a 401(k) plan (along with the other retirement plan limitations) remains unchanged. The dollar limits are as follows:

LIMIT

2015

2016

401(k)/403(b) Elective Deferral Limit (IRC § 402(g))

 

The annual limit on an employee’s elective deferrals to a 401(k) or 403(b) plan made through salary reduction.

$18,000

$18,000

Government/Tax Exempt Deferral Limit (IRC § 457(e)(15))

 

The annual limit on an employee’s elective deferrals concerning Section 457 deferred compensation plans of state and local governments and tax-exempt organizations.

$18,000

$18,000

401(k)/403(b)/457 Catch-up Limit (IRC § 414(v)(2)(B)(i))

 

In addition to the regular limit on elective deferrals described above, employees over the age of 50 generally can make an additional “catch-up” contribution not to exceed this limit.

$6,000

$6,000

Defined Contribution Plan Limit (IRC § 415(c))

 

The limitation for annual contributions to a defined contribution plan (such as a 401(k) plan or profit sharing plan).

$53,000

$53,000

Defined Benefit Plan Limit (IRC § 415(b))

 

The limitation on the annual benefits from a defined benefit plan.

$210,000

$210,000

Annual Compensation Limit (IRC § 401(a)(17))

 

The maximum amount of compensation that may be taken into account for benefit calculations and nondiscrimination testing.

$265,000

 

($395,000 for certain gov’t plans)

$265,000

 

($395,000 for certain gov’t plans)

Highly Compensated Employee Threshold (IRC § 414(q))

 

The definition of an HCE includes a compensation threshold for the prior year. A retirement plan’s discrimination testing is based on coverage and benefits for HCEs.

$120,000

 

(for 2016 HCE determination)

$120,000

 

(for 2017 HCE determination)

Key Employee Compensation Threshold (IRC § 416)

 

The definition of a key employee includes a compensation threshold. Key employees must be determined for purposes of applying the top-heavy rules. Generally, a plan is top-heavy if the plan benefits of key employees exceed 60% of the aggregate plan benefits of all employees.

$170,000

$170,000

SEP Minimum Compensation Limit (IRC § 408(k)(2)(C))

 

The mandatory participation requirements for a simplified employee pension (SEP) includes this minimum compensation threshold.

$600

$600

SIMPLE Employee Contribution (IRC § 408(p)(2)(E))

 

The limitation on deferrals to a SIMPLE retirement account.

$12,500

$12,500

SIMPLE Catch-up Limit (IRC § 414(v)(2)(B)(ii)))

 

The maximum amount of catch-up contributions that individuals age 50 or over may make to a SIMPLE retirement account or SIMPLE 401(k) plan.

$3,000

$3,000

Social Security Taxable Wage Base

$118,500

$118,500

Jackson Lewis P.C. © 2019

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About this Author

Keith A. Dropkin, Jackson Lewis, welfare benefit plans lawyer, payroll taxes attorney
Principal

Keith Dropkin is a Principal in the White Plains, New York, office of Jackson Lewis P.C.

Mr. Dropkin counsels clients regarding various benefit issues including fiduciary duty obligations, corrections under the DOL and IRS compliance programs, the drafting and design of pension and welfare benefit plans, payroll taxes and those issues arising in mergers and acquisitions. He has represented clients ranging from self-employed individuals to Fortune Top 50 companies. Mr. Dropkin speaks and writes regularly about employee...

(914) 872-8060
Bruce H. Schwartz, Employee Benefits Attorney, Jackson Lewis Law firm
Shareholder

Bruce Schwartz is a Principal in the White Plains, New York, office of Jackson Lewis P.C. He has more than 30 years of experience in all aspects of employee benefits and compensation counseling and is one the founders of the Firm’s Benefits Practice Group.

Mr. Schwartz’s practice encompasses virtually all areas of employee benefits law and federal tax law matters relating to benefits and compensation, including the following:

  • design, implementation and operation of tax-qualified retirement plans including 401(k), profit-sharing, stock bonus, defined benefit and 403(b) plans;
  • design, implementation and operation of supplemental executive retirement plans and other nonqualified deferred compensation plans, including compliance with Section 409A and Section 457;
  • analysis and implementation of severance and executive compensation plans;
  • compliance with tax law requirements applying to other employee benefit plans and compensation, including compliance with Section 125 cafeteria plan and Section 132 fringe benefit requirements;
  • advice with respect to federal tax and benefit rules applicable to contingent workers, including employee leasing and independent contractor issues; establishment, administration and operation of health and other welfare plans;

He has represented a full range of clients from small, closely-held businesses to large national and multinational entities companies in a broad range of industries. Prior to joining Jackson Lewis in 1989, Mr. Schwartz was a member of the tax/employee benefits groups at Kaye, Scholer, Fierman, Hays & Handler (1986-1989) and Olwine, Connelly, Chase, O’Donnell & Weyher (1984-1986).

914-872-6905
 Joy M. Napier-Joyce, Employment Benefits Attorney, Jackson Lewis Law Firm, ERISA
Office Managing Principal

Joy M. Napier-Joyce is the Office Managing Principal of the Baltimore, Maryland, office of Jackson Lewis P.C. She also leads the firm’s Employee Benefits Practice Group.

Ms. Napier-Joyce counsels clients in a broad range of benefit matters, including general compliance and administration of qualified retirement plans under ERISA and the Internal Revenue Code. She also assists clients with welfare plan issues involving cafeteria plans, health plans, flexible spending accounts, group insurance products, COBRA and HIPAA. Ms....

410-415-2000