The Internal Revenue Service has just released their 2016 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 the key limitations listed below are unchanged from 2015. 

Plan Limits for Plan Year
2016
2015
401(k), 403(b), 457 Elective Deferral Limit
$18,000
$18,000
Catch-Up Contribution Limit
$6,000
$6,000
Annual Compensation Limit
$265,000
$265,000
Defined Contribution Limit
$53,000
$53,000
Defined Benefit Limit
$210,000
$210,000
Key Employee
$170,000
$170,000
Definition of Highly Compensated Employee
$120,000
$120,000
Social Security Wage Base
$118,500
$118,500

Employer Action Items

Although unchanged, it is still a good idea to communicate the new limits to employees before the end of the year so they are aware of the 2016 limits and can make any appropriate changes to their benefit elections (as allowed by your plan documents). A sample email is included below. 

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 2016 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, 2016, the annual IRS-allowed maximum you can contribute to your 401(k) account is $18,000, (this is unchanged from 2015). In addition, if you will be age 50 or older at anytime in 2016, 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 2015 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. 


If you have any questions or need assistance, please feel free to contact us or i2i benefits at 650-363-7237.