Announcement of the official limits is still a few months
away, but early projections from Mercer suggest that nearly all qualified
retirement 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 projected to reach its
highest level since indexing began, causing 7%–11% increases for most limits,
based on their rounding levels, according to benefits consultant Mercer, whose
past projections have been rather accurate.
In addition, the non-SIMPLE plan catch-up limit—which has a
large rounding threshold—will jump more than 15%, the firm notes.
Using the Internal Revenue Code’s cost-of-living adjustment
and rounding methods, the CPI-U through June, and estimated CPI-U values for
July, August and September, the firm projects that the contribution limits for
401(k), 403(b) and eligible 457 plan elective deferrals (and designated Roth
contributions) will increase from $20,500 this year to $22,500 in 2023.
The 415(c) DC plan maximum annual addition is projected to increase
from $61,000 to $67,000. Mercer notes that the limit will be $66,000 if
inflation is less than 0.25% per month for July, August and September.
Additionally, the 414(q)(1)(B) highly compensated employee
and 414(q)(1)(C) top-paid group limit is projected to be $150,000 in 2023, up
from $135,000 this year.
Other 2023 projected increases include:
the 414(v)(2)(B)(i) catch-up contribution limit (for plans
other than SIMPLE plans) rises from $6,500 to $7,500 in 2023;
the 415(b) DB plan maximum annuity limit rises from $245,000
to $265,000;
the 401(a)(17) and 408(k)(3)(C) compensation limit rises
from $305,000 to $335,000 (Mercer also notes that the limit will be $330,000 if
inflation is less than 0.25% for July, August and September); and
the 416(i)(1)(A)(i) officer compensation for top-heavy plan
key employee limit rises from $200,000 to $215,000.
The estimates cannot be finalized until after September
CPI-U values are published in October. The IRS typically announces official
limits for the coming year in late October or early November.
Separate estimates by The Senior Citizens League (TSCL)
published last month show that 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 the June CPI data.
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