Record increases planned for 2023 pension plan caps

The announcement of official limits is still a few months away, but early projections from Mercer suggest nearly all qualified pension plan limits will increase by unprecedented amounts next year.

The 2023 limits will reflect increases in the consumer price index for all urban consumers (CPI-U) from the third quarter of 2021 to the third quarter of 2022. Using this measure, inflation is expected to peak level since indexing began, resulting in 7% to 11% increases for most limits, depending on their rounding levels, according benefits consultant Mercer, whose past projections have been pretty accurate.

Additionally, the catch-up limit for the non-SIMPLE plan — which has a significant rounding threshold — will jump by more than 15%, the firm notes.

Using the Internal Revenue Code cost of living adjustment and rounding methods, CPI-U through June and estimated CPI-U values ​​for July, August and September, the The company predicts that contribution limits for eligible 401(k), 403(b) and elective 457 plan deferrals (and designated Roth contributions) will increase from $20,500 this year to $22,500 in 2023.

The maximum annual 415(c) DC plan addition is expected to increase from $61,000 to $67,000. Mercer notes that the limit will be $66,000 if inflation is below 0.25% per month for July, August and September.

Additionally, the limit for high-paid 414(q)(1)(B) employees and the highest-paid 414(q)(1)(C) group is expected to be $150,000 in 2023, up from $135,000 this year. .

Other planned increases for 2023 include:

  • the 414(v)(2)(B)(i) catch-up contribution limit (for plans other than SIMPLE plans) increases from $6,500 to $7,500 in 2023;
  • the maximum annuity limit for the DB 415(b) plan is increased from $245,000 to $265,000;
  • the 401(a)(17) and 408(k)(3)(C) compensation limit is increased from $305,000 to $335,000 (Mercer also notes that the limit will be $330,000 if inflation is below 0.25% for July, August and September); and
  • 416(i)(1)(A)(i) executive compensation for key employees in the heaviest plan increases from $200,000 to $215,000.

The estimates can only be finalized after the September CPI-U values ​​are released in October. The IRS usually announces the official limits for the coming year in late October or early November.

Separate estimates from the Senior Citizens League (TSCL) released last month show next year’s annual Social Security Cost of Living Adjustment (COLA) could be 10.5% next year, the highest in more than four decades, based on June CPI data. .

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