November 2013

For 2014, Increases in Some IRS Dollar Limits and Social Security Figures

This Bulletin reports indexed Internal Revenue Service (IRS) and Social Security figures for 2014 that are of interest to retirement plan sponsors. It also includes the 2014 Pension Benefit Guaranty Corporation (PBGC) premium increases and maximum guarantee.

IRS RETIREMENT PLAN LIMITS

The 2014 IRS dollar limits for qualified plans and other tax-favored retirement plans are determined using the Consumer Price Index (CPI) data released on October 30, 2013. Because of rounding rules, the CPI increase of 1.2 percent over the 12 months that ended September 30, 2013, will cause only some of the IRS dollar limits to increase in 2014. The press release is on the following page of the IRS website: http://www.irs.gov/uac/Newsroom/In-2014,-Various-Tax-Benefits-Increase-Due-to-Inflation-Adjustments. The table below compares the 2014 limits to the 2013 limits.

IRS Retirement Plan Limits
  2013         2014   
Maximum Annual §415 Payout at Age 62 from a Defined Benefit Plan1 $205,000      $210,000
Maximum Annual Addition to an Individual’s Defined Contribution Account under §415(c) 51,000      52,000
Maximum Elective §401(k) and §403(b) Deferrals 17,500      Unchanged
Deferral Limit for §457(b) Plans 17,500      Unchanged
§401(k) and §403(b) Catch-Up Limit for Individuals Age 50 and Older 5,500      Unchanged
Maximum Amount of Annual Compensation that Can Be Taken into Account for Determining Benefits or Contributions under a Qualified Plan 255,000      260,000
§414(q) Test to Identify Highly Compensated Employees 115,000      Unchanged
Cost-of-Living Adjustment (COLA) factor for the 100%-of-Pay Limit under §415 1.70%2      1.55%3

1
There are late-retirement adjustments for benefits starting after age 65.
2
The 2013 factor was for participants who separated from service before 1/1/13.
3
The 2014 factor is for participants who separate from service before 1/1/14.


SOCIAL SECURITY BENEFITS

In 2014, Social Security benefits will increase by 1.5 percent. A fact sheet on this cost-of-living adjustment and other 2014 Social Security changes is on the Social Security Administration (SSA) website: http://www.ssa.gov/pressoffice/factsheets/colafacts2014.pdf. The table below compares the 2014 figures to the 2013 figures.

Social Security Benefit Tests and Limits
  2013      2014
Wage Base:
    a) for Social Security Tax
    b) for Medicare

$113,700
No Limit

$117,000
No Limit
COLA Increase 1.7% 1.5%
Social Security National Average Wage Index1 $42,979.61
(for 2011)
$44,321.67
(for 2012)
Primary Insurance Amount (PIA) Formula:2
    a) First Bend Point
    b) Second Bend Point

$791
$4,768

$816
$4,917
Maximum Social Security Benefit at Social Security Normal Retirement Age (SSNRA)3 $2,533/
month
$2,642/
month
Earnings Test – Early Retirement (Age 62) (Amount that Can Be Earned before Benefits Are Cut)4 $15,120/
Year
$15,480/
Year
1
This amount is not tied to the CPI, but rather to earnings as reported to the SSA. The 2012 average and background can be found on the following page of SSA’s website: http://www.ssa.gov/oact/cola/AWI.html.
2
PIA formula “bend points” are updated each year to reflect changes in the National Average Wage Index. The 2014 bend points can be found on the following page of the SSA’s website:
http://www.ssa.gov/oact/cola/piaformula.html
.
3
The maximum Social Security benefit at SSNRA is not tied to the CPI. It is based on the PIA formula (reflecting updated bend points) where a worker’s earnings are at the maximum taxable amount for his or her career. For workers born in 1943-1954, the SSNRA is age 66. For information on how SSNRA varies by birth year, see the following page of SSA’s website: http://www.ssa.gov/OACT/ProgData/nra.html.
4
In the year of attaining SSNRA, the early retirement earnings test is higher. In 2014, it will be $41,400/year ($3,450/month), up from $40,080/year ($3,340/month) in 2013. After attaining SSNRA, individuals can receive their full benefits regardless of how much they earn.


PBGC PREMIUMS AND GUARANTEE LIMIT

On November 6, 2013, the PBGC released the 2014 premium increases. The flat-rate, per-participant PBGC premiums for 2014 will be $49 for single-employer plans (up from $42 in 2013) and $12 for multiemployer plans (unchanged from 2013). The variable-rate premium for single-employer plans, which is indexed, will increase to $14 per $1,000 of unfunded vested benefits for 2014 (up from $9 in 2013). The per-participant cap on the variable-rate premium will increase to $412 in 2014 (up from $400 in 2013). The 2014 premium rates are noted on the following page of the PBGC website: http://www.pbgc.gov/prac/prem/premium-rates.html.

On November 6, 2013 the PBGC also released its monthly maximum guarantee for participants in single-employer pension plans that terminate during 2014, which will increase to $4,943.18 per month ($59,318.16 annually) at age 65 from $4,789.77 per month ($57,477.24 annually) in 2013. The press release is on the following page of the PBGC website: http://www.pbgc.gov/news/press/releases/pr13-13.html. (The PBGC’s multiemployer guarantee is not indexed.*)

•  •  •

If you would like additional information about any of these items, please contact your Sibson consultant or the Sibson office nearest you.

*
There is no dollar limit on the monthly benefit payable under the multiemployer program, only a limit on the benefit rate used to calculate the monthly benefit. For a participant with 30 years of service, the maximum benefit is $12,870. For additional information, see the following page of the PBGC website: http://www.pbgc.gov/prac/multiemployer/multiemployer-benefit-guarantees.html.

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