Benefit Plans: 2013 COLAs

October 1, 2012

By Compensation Planning & Employee Benefits Group

The Internal Revenue Service has announced the 2013 cost-of-living adjustments (COLAs) for retirement plans. Most of the limits related to retirement plans are increased.

  • Annual compensation limit. The compensation limit for calculating benefits and contributions, for general and 401(k) discrimination testing, and for determining tax deductions increases from $250,000 in 2012 to $255,000 for plan years beginning in 2013.

  • Elective deferrals (401(k)/Roth). The calendar year elective deferral contribution limit increases from $17,000 in calendar year 2012 to $17,500 in calendar year 2013.

  • Catch-up contributions. The calendar year dollar limitation for catch-up elective deferral contributions for individuals who, in 2013, are age 50 or above remains unchanged at $5,500 in calendar year 2013.

  • Highly compensated employee. For plan years ending in 2013, 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 $115,000 (remains unchanged at $115,000 when the “preceding year” is 2013) 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% of the employees based on compensation.)

  • Defined contribution plans. The annual dollar limitation on additions to defined contribution plans increases to $51,000 for plan limitation years ending in 2013. In 2012, the defined contribution plan dollar limitation was $50,000.

  • Defined benefit plans. For plan limitation years ending in 2013, the annual dollar benefit limitation under a defined benefit plan increases from $200,000 in 2012 to $205,000 in 2013. For participants who separated from service before January 1, 2013, the 100% of average high-three-years’ compensation limit is computed by multiplying the participant’s compensation limitation, as adjusted through 2012, by 1.0170.

  • 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 increases to $1,035,000 in 2013 (from $1,015,000 in 2012), while the dollar amount used to determine the lengthening of the five-year distribution period increases to $205,000 (from $200,000 in 2012).

  • Key employee in top-heavy plan. In defining who is a key employee in a top-heavy plan, for plan years ending in 2013, the compensation threshold for an officer remains unchanged at $165,000.

  • Social security taxable wage base. The social security taxable wage base for 2013 (applicable to integrated plans with plan years beginning in 2013) increases to $113,700 (from $110,000 in 2012).

Debra J. Linder
Direct Dial:  612.492.7163

James B. Platt
Direct Dial:  612.492.7047