SibsonFinalBulletin1.jpg

October 2014

October 2014 Bulletin, "For 2015, Increases in Most IRS Dollar Limits and Social Security Figures"

This Bulletin reports indexed Internal Revenue Service (IRS) and Social Security figures for 2015 that are of interest to retirement plan sponsors. It also includes the 2015 Pension Benefit Guaranty Corporation (PBGC) premium rates and maximum guarantee.

IRS RETIREMENT PLAN LIMITS

The 2015 IRS dollar limits for qualified plans and other tax-favored retirement plans are determined using the Consumer Price Index (CPI) data released on October 22, 2014. The CPI increase of 1.7 percent over the 12 months that ended September 30, 2014, will cause most of the IRS dollar limits to increase in 2015. The press release is on the IRS website. The table below compares some of the 2015 limits to those limits for 2004.                                                                                                                      

           
IRS Retirement Plan Limits
  2014 2015
Maximum §415(b) Annual Payout at Age 62 from a Defined Benefit Plan* $210,000 Unchanged
Maximum §415(c) Annual Addition to a Defined Contribution Plan Account 52,000 53,000
Annual Elective §401(k) and §403(b) Deferral Limit 17,500 18,000
Annual §457(b) Deferral Limit 17,500 18,000
Annual §401(k) and §403(b) Catch-Up Limit (Age 50 and Older) 5,500 6,000
Maximum §401(a)(17) Annual Compensation Amount Considered for Qualified and §403(b) Plans 260,000 265,000
Annual §414(q) Compensation Threshold to Identify Highly Compensated Employees 115,000 120,000
Annual §416 Top-Heavy Compensation Threshold to Identify Key Employees 170,000 Unchanged
Cost-of-Living Adjustment (COLA) factor for the §415(b) 100%-of-Pay Limit 1.55%2 1.78%3

1 There are late-retirement adjustments for benefits starting after age 65.

2 The 2014 factor was for participants who separated from service before 1/1/14.

3 The 2015 factor is for participants who separate from service before 1/1/15.


SOCIAL SECURITY BENEFITS

In 2015, Social Security benefits will increase by 1.7 percent. A fact sheet on this cost-of-living adjustment and other Social Security changes is on the Social Security Administration (SSA) website. The table below compares the 2015 figures to the 2014 figures.

   
Social Security Benefit Tests and Limits
 
2014
  2015
Wage Base:
  a) for Social Security Tax
  b) for Medicare
$117,000
No Limit
$118,500
No Limit
COLA Increase
1.5%
1.7%
Social Security National Average Wage Index1
$44,321.67
(for 2012)
$44,888.16
   (for 2013)
Primary Insurance Amount (PIA) Formula:2
  a) First Bend Point
  b) Second Bend Point
  $816
$4,917
  $826
$4,980
Maximum Social Security Benefit at Social Security Normal Retirement Age (SSNRA)3
$2,642/
month
$2,643/
month
Earnings Test – Early Retirement (Age 62) (Amount that Can Be Earned before Benefits Are Cut)4
$15,480/
Year
$15,720/
Year

1 This amount is not tied to the CPI, but rather to earnings as reported to the SSA. The 2013 average (which is relevant for 2015) and background can be found on the following page of SSA’s website: http://www.socialsecurity.gov/oact/cola/AWI.html.

2 PIA formula “bend points” are updated each year to reflect changes in the National Average Wage Index. The 2015 bend points can be found on the following page of the SSA’s website: http://www.socialsecurity.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.socialsecurity.gov/OACT/ProgData/nra.html.

4 In the year of attaining SSNRA, the early retirement earnings test is higher. In 2015, it will be $41,880/year ($3,490/month), up from $41,400/year ($3,450/month) in 2014. After attaining SSNRA, individuals can receive their full benefits regardless of how much they earn.


PBGC PREMIUMS AND GUARANTEE LIMIT

The Bipartisan Budget Act of 2013 (2013 Budget Act) set the 2015 flat-rate, per-participant premium amount for single-employer plans at $57, up from $49 for 2014.1The 2013 Budget Act increased the variable-rate premium (VRP) per $1,000 of unfunded vested benefits in single-employer plans to at least $24 for 2015 subject to indexing, up from $14 for 2014.2 Indexing does not increase the $24 premium amount for 2015 but indexing increases the per-participant cap on the VRP to $418 for 2015, up from $412 for 2014. The 2015 premium rates are noted on this page of the PBGC website.

On October 27, 2014, the PBGC released its monthly maximum guarantee for participants in single-employer pension plans that terminate during 2015, which will increase to $5,011 per month ($60,136 annually) at age 65 from $4,943 per month ($59,318 annually) for 2014.3 The PBGC announcement is on the following page of the PBGC website.

•  •  •

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

 

1 Multiemployer plan premiums were not affected by that law. The 2014 flat-rate, per-participant premium for multiemployer plans of $12 subject to indexing, will be increased to $13 for 2015 based on indexing, under PBGC premium increases released on October 24, 2014.

2 Under the 2013 Budget Act, the stated dollar amount was the total of the 2014 premium plus a flat dollar amount of $10 for 2015, to be added after the 2014 premium amount was indexed.

3 This increase is based on the increase in the “old law Social Security wage base” from $84,300 to $88,200. The PBGC’s multiemployer guarantee remains unchanged because it is not indexed. 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.