Employees' maximum 401k contributions to stay the same but rise for employers in 2017
- Employees’ maximum allowable contribution to their 401(k) plans remains at the 2016 level, $18,000, for 2017. Workers 50 and over may still contribute the maximum catch-up rate of $6,000. However, the combined maximum contribution, that is, from both employers and workers, increases by $1,000 next year.
- Employers’ share of deferred compensation can be as high as $1,000 in 2017, even if employees make only the minimum contribution. The yearly maximum contribution from both sources increases from $53,000 to $54,000. The cap on annual employee earnings, on which maximum contribution and deferral rates are based, also rises, from $265,000 to $270,000 next year.
- Contribution maximums for employees have stayed the same for two years, reports SHRM. The reason cited is the scant rise in the cost-of-living index. The 1.09 % COLA increase between 2015 and 2016 third quarters wasn’t enough to prompt the IRS to raise maximum defined contributions.
Under IRS rules, calculating maximum contributions in defined retirement plans is complicated, especially for high wage earners. The IRS defines highly compensated employees as those earning at least $120,000 a year, a definition that remains unchanged in 2017. But the agency uses a calculation method called annual nondiscrimination testing, which sets the current income limit of “key” employees at $170,00 and increases it to $175,000 next year. Companies with many highly compensated employees must understand this calculation method to make sure they’re complying with the IRS code.
Employees in a recent survey say they’re unhappy about the way benefits are accessed and communicated through HRMS. Retirement plans can be complicated instruments for employees; therefore, HR professionals may need to review and upgrade their HRMS so that access to retirement accounts are easy and plan descriptions and rules are clear.