On October 19, 2017, the Internal Revenue Service released Notice 2017-64, announcing cost-of-living adjustments (COLAs) that affect contribution limits for retirement plans in 2018. The list below, although not exhaustive, highlights key changes that retirement plan sponsors should be aware of, as well as some limitations that remain unchanged from 2017:
- The elective deferral limit is increasing from $18,000 to $18,500.
- The aggregate contribution limit for defined contribution plans is increasing from $54,000 to $55,000.
- The annual compensation limit used to calculate contributions is increasing from $270,000 to $275,000.
- The limitation on the annual benefit under a defined benefit plan is increasing from $215,000 to $220,000.
- The dollar limit used in the definition of “key employee” in a top-heavy retirement plan remains unchanged at $175,000.
- The dollar limit used in the definition of “highly compensated employee” remains unchanged at $120,000.
- The catch-up contribution limit for employees age 50 or older remains unchanged at $6,000.
The table below displays the 2017 and 2018 limits for a host of tax breaks:
| 401(k) Plan Limits for Plan Year | 2018 Limit | 2017 Limit |
| 401(k) Elective Deferral Limit1 | $18,500 | $18,000 |
| Catch-Up Contribution2 | $6,000 | $6,000 |
| Defined Contribution Dollar Limit | $55,000 | $54,000 |
| Compensation Limit3 | $275,000 | $270,000 |
| Highly Compensated Employee Income Limit | $120,000 | $120,000 |
| Key Employee Officer Limit | $175,000 | $175,000 |
| Non-401(k) Limits | ||
| 403(b) Elective Deferral Limit1 | $18,500 | $18,000 |
| Defined Benefit Dollar Limit | $220,000 | $215,000 |
| 457 Employee Deferral Limit | $18,500 | $18,000 |
| SEP and SIMPLE IRA Limits | 2018 Limit | 2017 Limit |
| SEP Minimum Compensation | $600 | $600 |
| SEP Maximum Compensation | $275,000 | $270,000 |
| SIMPLE Contribution Limit | $12,500 | $12,500 |
| SIMPLE Catch-Up Contribution2 | $3,000 | $3,000 |
| IRA and Roth Limits | ||
| IRA and Roth Contribution Limit | $5,500 | $5,500 |
| Catch-Up Contribution2 | $1,000 | $1,000 |
1Employee deferrals to all 401(k) and 403(b) plans must be aggregated for purposes of this limit.
2Contributors must be age 50 or older during the calendar year.
3All compensation from a single employer (including all members of a controlled group) must be aggregated for purposes of this limit.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors should consult a tax preparer, professional tax advisor, and/or a lawyer.
I recently had the privilege of attending the National Plan Advisors Association (NAPA) annual conference where some of the best and brightest minds in the retirement plan industry gather to discuss best practices, pending and recent legislation, and industry trends. In one of the sessions it was noted that it is a fiduciary breach to make decisions just to protect yourself as a fiduciary. For me this was one of those “ah-ha” moments that made me sit back and think about the way that we make decisions as a co-fiduciary. Are we keeping the best interests of the participants first or focusing so myopically on fiduciary best practices from a CYA (cover your behind) perspective that we miss out on the big picture? Since I was forced to contemplate our process, I thought I would also share the basics of fiduciary duty with you as well.
Jamie Kertis, AIF®, QKA
Today, some of you may go to your mailbox and find a check waiting for you. This check may be anywhere from a couple of hundred dollars to a couple of thousand dollars. And on any other day, but today, you would probably be thrilled to find such a surprise awaiting you in a mass of otherwise junk mail. However today, March 15th, is the deadline to make 401(k) compliance testing refunds to avoid a 10% excise tax (to your employer); therefore, if you receive a check today (or in the next few days) from the company that recordkeeps your company’s 401(k) plan , then you have just received a 401(k) refund.
There are several annoying implications of receiving money out of your retirement plan. The first is that money that you intended to be set aside as tax deferred is now taxable at a time that is more than likely earlier than you would have liked. The second is the potential impact to your overall retirement plan in that any money that comes out of the plan early is lessening that which you had saved for retirement. Finally, we have found that there is a compounding negative impact on your desire to want to continue to participate in your company’s retirement plan when refunds are received in multiple years.
Ready for the silver lining in this article? There are options that are available to retirement plans to correct the issue of refunds. Most of them involve examining the plan design to determine if there could be any modifications that would improve the likelihood of the plan passing testing. A Safe Harbor plan design would allow the plan to receive an automatic pass of the compliance tests that cause refunds. Adding an automatic enrollment option could give an immediate boost to participation numbers which could give added support to the testing calculations. Implementing a comprehensive education plan could bolster both participation and deferral percentages. These are just a few of the designs and your plan would have to be reviewed in detail to determine if one of these or potentially another solution would be right.
Every six years, the IRS requires that employers using a pre-approved prototype or volume-submitter 401(k) document restate their plan document to incorporate any and all changes made to the regulations and tax laws that impact retirement plans. This go-around is labeled the Pension Protection Act of 2006 (PPA) restatement process and will pick up the changes made by the Pension Protection Act of 2006, the final 415 regulations, the Heroes Earnings Assistance and Relief Act (HEART) of 2008 and the Worker, Retiree and Employer Recovery Act (WRERA) of 2008. The window for restating your plan document opened on May 1, 2014 and will close April 30, 2016 which means if this is the first time that you are hearing about this restatement phase it is of the utmost importance that you contact your third party administrator (TPA) as soon as possible to get your restatement started.
