Benefit Plans: 2014 COLAs

November 4, 2013

By Compensation Planning & Employee Benefits Group

The Internal Revenue Service has announced the 2014 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 $255,000 in 2013 to $260,000 for plan years beginning in 2014.

  • Elective deferrals (401(k)/Roth). The calendar year elective deferral contribution limit remains unchanged at $17,500 in calendar year 2014.

  • Catch-up contributions. The calendar year dollar limitation for catch-up elective deferral contributions for individuals who, in 2014, are age 50 or above remains unchanged at $5,500 in calendar year 2014.

  • Highly compensated employee. For plan years ending in 2014, a “highly compensated employee” is one who (a) was a more-than-5 percent 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 2014) 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 increases to $52,000 for plan limitation years ending in 2014. In 2013, the defined contribution plan dollar limitation was $51,000.

  • Defined benefit plans. For plan limitation years ending in 2014, the annual dollar benefit limitation under a defined benefit plan increases from $205,000 in 2013 to $210,000 in 2014. For participants who separated from service before January 1, 2014, the 100 percent of average high-three-years’ compensation limit is computed by multiplying the participant’s compensation limitation, as adjusted through 2013, by 1.0155.

  • 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 $1,050,000 in 2014 (from $1,035,000 in 2013), while the dollar amount used to determine the lengthening of the five-year distribution period increases to $210,000 (from $205,000 in 2013).

  • Key employee in top-heavy plan. In defining who is a key employee in a top-heavy plan, for plan years ending in 2014, the compensation threshold for an officer increases to $170,000 (from $165,000 in 2013).

  • Social security taxable wage base. The social security taxable wage base for 2014 (applicable to integrated plans with plan years beginning in 2014) increases to $117,000 (from $113,700 in 2013).

Debra J. Linder
Direct Dial:  612.492.7163
Email:  dlinder@fredlaw.com

James B. Platt
Direct Dial:  612.492.7047
Email:  jplatt@fredlaw.com