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By Compensation Planning & Employee Benefits Group

The Internal Revenue Service has announced the 2018 cost-of-living adjustments (COLAs) for retirement plans. Some limits have increased, and some have remained the same.

  • Annual compensation limit.  The compensation limit for calculating benefits and contributions, for general and 401(k) discrimination testing, and for determining tax deductions has increased to $275,000 for plan years beginning in 2018.

  • Elective deferrals (401(k)/Roth/403(b)/457).  The calendar year elective deferral contribution limit has increased to $18,500 in calendar year 2018.

  • Catch-up contributions.  The calendar year dollar limitation for catch-up elective deferral contributions for individuals who, in 2018, are age 50 or above remains at $6,000 in calendar year 2018.

  • Highly compensated employee.  For plan years ending in 2018, a “highly compensated employee” is one who (a) was a more-than-5% owner during the year or the preceding year, or (b) for the preceding year (i) had compensation in excess of $120,000 (whether using 2017 or 2018 as the “preceding year”) and (ii) if the employer elects for the plan year, was in the top-paid group of employees. (The top-paid group is the top 20 percent of the employees based on compensation.)

  • Defined contribution plans.  The annual dollar limitation on additions to defined contribution plans has increased to $55,000 for plan limitation years ending in 2018.

  • Defined benefit plans.  For plan limitation years ending in 2018, the annual dollar benefit limitation under a defined benefit plan has increased to $220,000. For participants who separated from service before January 1, 2018, the 100 percent of average high-three-years’ compensation limit is computed by multiplying the participant’s compensation limitation, as adjusted through 2017, by 1.0197.

  • ESOP five-year distribution period.  The dollar amount used in determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period has increased to $1,105,000 in 2018, while the dollar amount used to determine the lengthening of the five-year distribution period has increased to $220,000.

  • Key employee in top-heavy plan.  In defining who is a key employee in a top-heavy plan, for plan years ending in 2018, the compensation threshold for an officer remains at $175,000.

  • Social security taxable wage base.  The social security taxable wage base for 2018 (applicable to integrated plans with plan years beginning in 2018) has increased to $128,400. 

For more information:

Debra J. Linder

Thomas B. Henke

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