Ahead of the approaching holiday season (!), the Internal Revenue Service has just released their 2015 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.

Plan Limits for Plan Year 2015 2014
401(k), 403(b), 457 Elective Deferral Limit $18,000 $17,500
Catch-Up Contribution Limit $6,000 $5,500
Annual Compensation Limit $265,000 $260,000
Defined Contribution Limit $53,000 $52,000
Defined Benefit Limit $210,000 $210,000
Key Employee $170,000 $170,000
Definition of Highly Compensated Employee $120,000 $115,000
Social Security Wage Base $118,500 $117,000
Two limits that will 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 April 4 post for other related 2015 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 2015 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 2015 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, 2015, the annual IRS-allowed maximum you can contribute to your 401(k) account is $18,000, (an increase of $500 from 2014). In addition, if you will be age 50 or older at anytime in 2015, you may choose to contribute an additional $6,000 for a total maximum contribution of $24,000. [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 2014 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 2015 set by the IRS include: [edit as needed for your organization]
  • An increase in the annual maximum Health Savings Account contribution to $3,350 for single coverage and $6,650 for family coverage;
  • An increase to $118,500 to the maximum wages considered for Social Security taxes;
  • An increase to $265,000 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.