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Retirement Planning > Retirement Investing

Retirement plan limits expected to rise

By Nick Thornton

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The smart money is saying that IRS-imposed retirement plan benefit limits are set to increase in 2015. 

At least that’s the speculation coming from the actuaries at Buck Consultants. 

The IRS will release the official numbers on or about Oct. 22. But Marge Martin, a principal with the global benefits consultant, has come up with some of her own figures. 

Martin noted in a recent blog post that the cost of living adjustments made to benefit limits are set based on the Consumer Price Index-Urban for three months — July, August and September. The Bureau of Labor Statistics has already released July and August’s CPI-U. 

September’s rate of inflation is scheduled to be released on Oct. 22, at which time sponsors will know for certain whether 2015 will bring benefit increases. 

But Martin thinks the outcome is all but certain. “With both the July and August rates in hand, there is little doubt that we will see increases in most of the benefit limits for 2015,” she wrote. 

So long as September’s CPI-U is roughly the same as August’s, the annual limit on 401(k) deferrals will move from $17,500 to $18,000 and the “catch up” limit for pre-retirees will jump from $5,500 to $6,000, she wrote. 

The maximum defined benefit pension would remain at $210,000. September’s CPI-U would have to increase 1.2 percent over August’s rate of inflation in order for the limit to be bumped to $215,000, a scenario that Martin also says is unlikely.

 The compensation limit, which is the limit on employee compensation that can be considered in calculating contributions to 401(k) plans, will increase to $265,000 from $260,000 in almost all imaginable inflation outcomes for September. 

And the highly compensated employee threshold, which determines the limit for 401(k) nondiscrimination testing, is expected to increase to $120,000 from $115,000. 

A new estimation for Qualified Longevity Annuity Contracts has been added to this year’s list. 

The cap on the benefit for QLACs is $125,000. It will remain the same. Limits on QLACs move in $10,000 increments. An 8 percent increase in the CPI-U would be required to warrant a limit increase, a rate of inflation that hasn’t been seen since the early 1980s.

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