We’re still a few months away from knowing the official amounts, but with inflation at a 40-year high, early projections suggest that the 2023 qualified retirement plan limits could see a record increase.
“With only four months remaining for federal fiscal year (FFY) 2022, our forecast of the 2023 IRS limits could set a record one-year increase, both in dollars and percentage, even if inflation transitions to 3.0% annually (0.25% per month) for June through September 2022,” writes Charles Clark, Milliman’s Director of Employee Benefits Research Group. “We note that the chair of the Federal Reserve and the Secretary of Treasury have made statements that inflation is likely to continue at an elevated rate in the near future.”
Using the Internal Revenue Code’s cost-of-living adjustment and rounding methods, the Consumer Price Index for All Urban Consumers (CPI-U) through May and estimated CPI-U values, Milliman 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 $22,000 in 2023. The 415(c) DC plan maximum annual addition is projected to increase from $61,000 to $66,000 in 2023, and the 414(q)(1)(B) highly compensated employee and 414(q)(1)(C) top-paid group limit is projected to increase from $135,000 to $145,000.
Other 2023 projected increases include:
- the 415(b) DB plan maximum annuity limit rising from $245,000 to $265,000;
- the 401(a)(17) and 408(k)(3)(C) compensation limit rising from $305,000 to $330,000; and
- the 414(v)(2)(B)(i) catch-up contribution limit for age 50 or older from $6,500 to $7,000.
Milliman’s forecast of the 2023 IRS limits uses two sets of assumptions, with one using the actual 12-month CPI-U of 8.3% ending May 31, 2022, which Clark notes is “apocryphal” since the 2023 limits will not be calculated on the current trailing 12 months of CPI. The second set, which is shown above, assumes that CPI will continue to increase each month, from June through September, at 25 basis points (3% annual).
The figures cannot be finalized until after September CPI-U values are published in October. The June CPI results are expected to be released on July 10, at which time Milliman’s forecast will be revised. The IRS typically announces official limits for the coming year in late October or early November.
Still, plan sponsors may wish to prepare for the changes to the limits for the retirement plans they sponsor and the effect on their labor costs and talent recruitment and retention efforts in 2023, Clark explains. This, he notes, could help plan sponsors budget for the costs in the wake of the Great Resignation and the declines in retirement account values due to the financial markets’ volatile corrections and declines in 2022.
- Log in to post comments