Dive Brief:
- 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.
Dive Insight:
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.
