Ahead of the rapidly approaching holiday season, the Internal Revenue Service has recently released their 2014 cost-of-living adjustments (COLAs) for certain pension plan and other retirement-related items. In general, a limit changes when the increase in the Consumer Price Index meets the statutory threshold set for that particular item. Please note that some key limitations are unchanged. The complete table for 2014 may be found on the IRS website.

Plan Limits for Plan Year 2014 2013
401(k), 403(b), 457 Elective Deferral Limit $17,500 $17,500
Catch-Up Contribution Limit $5,500 $5,500
Annual Compensation Limit $260,000 $255,000
Defined Contribution Limit $52,000 $51,000
Defined Benefit Limit $210,000 $205,000
Key Employee $170,000 $165,000
Definition of Highly Compensated Employee $115,000 $115,000
Social Security Wage Base $117,000 $113,700

OTHER IMPORTANT BENEFIT LIMITS FOR 2014

In a separate press release, the IRS also announced the 2014 COLAs for a variety of other tax-advantaged employee benefits, including:
  •  Qualified Transportation Expenses - the monthly limit for qualified parking will be $250 (a $5 increase from 2013); the combined monthly limit for transit and van pooling will be $130 (a $115 decrease from 2013). As in past years, Congress may or may not revisit this limit to bring it into parity with the limit on parking expenses.
  • Adoption Assistance Exclusion - the maximum amount of employer provided adoption assistance that may be excluded from an employee's taxable income will increase to $13,190 (an increase of $220).
  • Small Business Health Care Tax Credit - the average annual wage at which the credit begins to phase-out for eligible employers will be $25,400 (an increase of $400) and the maximum average annual wage to qualify for the credit will increase to $50,800 (twice the amount at which the phase-out begins).
Two limits that did not change are the limit on salary reductions for Health FSAs which remains at $2,500 and the limit for Dependent Care FSAs, remaining at $5,000. The full press release is available here at the IRS website. (Note: please see our May 3 blog post for other related 2014 benefit limits, including HSA contributions and deductible/out-of-pocket maximums for HDHPs.)

EMPLOYER ACTION ITEMS

  • Make sure your payroll and  benefits systems have been updated with any new limits so that contributions are properly deducted;
  • Communicate the new limits to employees before the end of the year so they are aware of any changes for 2014 and can make any appropriate changes to their benefit elections (as allowed by your plan documents). A sample email is included below.
  • Update or amend plan documents, forms, and employee communication materials as necessary (in general, amendments are not required for COLAs).
Please let us know if we can answer any questions for you about these or other year-end considerations.
SAMPLE EMAIL
Dear Employees, As the end of the year approaches, we want to let you know about some of the important benefit limits for 2014 and remind you about the great opportunity our 401(k) plan provides for paying yourself first and including savings as a part of your overall budget. Effective January 1, 2014, the annual IRS-allowed maximum you can contribute to your 401(k) account is $17,500 (unchanged from 2013). In addition, if you will be age 50 or older at anytime in 2014, you may choose to contribute an additional $5,500 for a total maximum contribution of $23,000. (EMPLOYER TIPS: You may want to 1) mention your company matching contribution which can be an incentive for employees to enroll in the plan or increase their contributions and 2) remind employees they still have time to maximize their 2013 contributions.) We encourage you to contribute as much as you can to the 401(k) plan and maximize your contributions whenever possible. If you would like to enroll in the plan or increase your contributions, simply log into your 401(k) account online and request a deferral or contribution rate change or complete the appropriate paperwork through the Human Resources Department. Other changes for 2014 set by the IRS include: (edit as needed)
  • An increase in the monthly pre-tax parking deferral limit to $250
  • A decrease in the monthly pre-tax transit/van pool deferral limit to $130
  • An increase in our Adoption Assistance Program to (...)
  • An increase in the annual maximum Health Savings Account contribution to $3,300 for single coverage and $6,550 for family coverage
  • An increase to $117,000 to the maximum wages considered for Social Security taxes
  • An increase to $260,000 in the amount of compensation eligible for consideration for retirement plan contributions.
If you have any questions or need assistance, please feel free to contact us or i2i benefits at 650-363-7237.