Retirement Plan Dollar Limit Changes for 2018

IRS has announced the 2018 cost-of-living adjustments (COLAs) with respect to retirement plan limits. Many limits, which are adjusted by reference to Code Sec. 415(d), are changed for 2018 since the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, others remain unchanged. Certain dollar limit changes keyed to Code Sec. 1(f)(3), some of which were previously calculated by Thomson Reuters Checkpoint (see Weekly Alert ¶ 2 09/21/2017), have also increased.

The following plan limits are increased effective Jan. 1, 2018:

Elective deferrals.

The Code Sec. 402(g)(1) limit on the exclusion for elective deferrals described in Code Sec. 402(g)(3) increases from $18,000 to $18,500. This limitation affects elective deferrals to Code Sec. 401(k) plans, Code Sec. 403(b) plans, and the Federal Government’s Thrift Savings Plan.

Defined contribution plans.

The limit on the annual additions to a participant’s defined contribution account under Code Sec. 415(c)(1)(A) increases from $54,000 for 2017 to $55,000 for 2018.

Defined benefit plans.

The limitation on the annual benefit under a defined benefit plan under Code Sec. 415(b)(1)(A) increases from $215,000 for 2017 to $220,000 for 2018. For participants who separated from service before Jan. 1, 2018, the 100% of average high-three-years’ compensation under Code Sec. 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2017, by 1.0196.

Annual compensation limit.

The maximum amount of annual compensation that can be taken into account for various qualified plan purposes, including Code Sec. 401(a)(17), Code Sec. 404(l), Code Sec. 408(k)(3)(C), and Code Sec. 408(k)(6)(D)(ii), increases from $270,000 for 2017 to $275,000 for 2018.
ESOP 5-year distribution period. The dollar amount under Code Sec. 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan (ESOP) subject to a 5-year distribution period increases from $1,080,000 to $1,105,000 for 2018, while the dollar amount used to determine the lengthening of the five year distribution period increases from $215,000 to $220,000 for 2018.

Government plans subject to the grandfather rule.

The annual compensation limitation under Code Sec. 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, ’93 allowed COLAs to the plan’s compensation limit under Code Sec. 401(a)(17) to be taken into account, increases from $400,000 for 2017 to $405,000 for 2018.

Government, etc. deferred compensation plans.

The limit on deferrals under Code Sec. 457(e)(15), concerning deferred compensation plans of state and local governments and tax-exempt organizations, increases from $18,000 for 2017 to $18,500 for 2018.

Gratuitous transfers of employer securities.

The limitation under Code Sec. 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan increases from $45,000 for 2017 to $50,000 for 2018.

Control employee.

The employee compensation amount used in the definition of “control employee” for purposes of the auto commuting rule of Reg. § 1.61-21(f)(5)(i) increases from $105,000 for 2017 to $110,000 for 2018. And, the compensation amount under Reg. § 1.61-21(f)(5)(iii) increases from $215,000 for 2017 to $220,000 for 2018.

Premiums on longevity annuity contracts.

The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Reg. § 1.401(a)(9)-6, Q&A-17(b)(2)(i), increases from $125,000 for 2017 to $130,000 for 2018.

Systemically important plan.

The threshold used to determine whether a multi-employer plan is a systemically important plan under Code Sec. 432(e)(9)(H)(v)(III)(aa) increases for 2018 from $1,012,000,000 to $1,087,000,000.