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2016 Cost of Living Adjustments for Retirement Plans

By Keith A. Dropkin, Joy M. Napier-Joyce and Bruce H. Schwartz
  • October 23, 2015

The Internal Revenue Service recently announced its cost-of-living adjustments applicable to dollar limitations for retirement plans and Social Security generally effective for Tax Year 2016 (see IR-2015-118). Most notably, the limitation on annual salary deferrals into a 401(k) plan (along with the other retirement plan limitations) remains unchanged. The dollar limits are as follows:

LIMIT 2015 2016
401(k)/403(b) Elective Deferral Limit (IRC § 402(g))
The annual limit on an employee’s elective deferrals to a 401(k) or 403(b) plan made through salary reduction.
$18,000 $18,000
Government/Tax Exempt Deferral Limit (IRC § 457(e)(15))
The annual limit on an employee’s elective deferrals concerning Section 457 deferred compensation plans of state and local governments and tax-exempt organizations.
$18,000 $18,000
401(k)/403(b)/457 Catch-up Limit (IRC § 414(v)(2)(B)(i))
In addition to the regular limit on elective deferrals described above, employees over the age of 50 generally can make an additional “catch-up” contribution not to exceed this limit.
$6,000 $6,000
Defined Contribution Plan Limit (IRC § 415(c))
The limitation for annual contributions to a defined contribution plan (such as a 401(k) plan or profit sharing plan).
$53,000 $53,000
Defined Benefit Plan Limit (IRC § 415(b))
The limitation on the annual benefits from a defined benefit plan.
$210,000 $210,000
Annual Compensation Limit (IRC § 401(a)(17))
The maximum amount of compensation that may be taken into account for benefit calculations and nondiscrimination testing.
$265,000
($395,000 for certain gov’t plans)
$265,000
($395,000 for certain gov’t plans)
Highly Compensated Employee Threshold (IRC § 414(q))
The definition of an HCE includes a compensation threshold for the prior year. A retirement plan’s discrimination testing is based on coverage and benefits for HCEs.
$120,000
(for 2016 HCE determination)
$120,000
(for 2016 HCE determination)
Key Employee Compensation Threshold (IRC § 416)
The definition of a key employee includes a compensation threshold. Key employees must be determined for purposes of applying the top-heavy rules. Generally, a plan is top-heavy if the plan benefits of key employees exceed 60% of the aggregate plan benefits of all employees.
$170,000 $170,000
SEP Minimum Compensation Limit (IRC § 408(k)(2)(C))
The mandatory participation requirements for a simplified employee pension (SEP) includes this minimum compensation threshold.
$600 $600
SIMPLE Employee Contribution (IRC § 408(p)(2)(E))
The limitation on deferrals to a SIMPLE retirement account.
$12,500 $12,500
SIMPLE Catch-up Limit (IRC § 414(v)(2)(B)(ii)))
The maximum amount of catch-up contributions that individuals age 50 or over may make to a SIMPLE retirement account or SIMPLE 401(k) plan.
$3,000 $3,000
Social Security Taxable Wage Base $118,500 $118,500

For more information on this or other workplace developments, please contact the Jackson Lewis attorney with whom you regularly work.

©2015 Jackson Lewis P.C. This Update is provided for informational purposes only. It is not intended as legal advice nor does it create an attorney/client relationship between Jackson Lewis and any readers or recipients. Readers should consult counsel of their own choosing to discuss how these matters relate to their individual circumstances. Reproduction in whole or in part is prohibited without the express written consent of Jackson Lewis.

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