It won’t be official for a few more weeks, but nearly all qualified retirement plan limits will increase significantly in 2022, something the industry hasn’t seen across the board in years.
According to Mercer, a benefit consulting group, deferral limits for 401(k) plans will increase from$19,500 to $20,500 next year. Additionally, if the Internal Revenue Service’s formula for increases hold, we will also see maximum annual increases for defined contribution plans go from $58,000 up to $61,000, one of the highest increases we’ve seen in recent years. The stated increases will affect 401(k), 403(b) and eligible 457 plan elective deferrals as well as designated Roth contributions.
These increases are reflections of the Consumer Price Index for All Urban Consumers (CPI-U) from third quarter 2020 to third quarter 2021, according to Mercer, a wealth management consulting firm. They also note that the increases should hold unless there is an exceptionally high inflation level in the third quarter of this year.
Inflationary levels are responsible for the highest increase in plan limits since 2008, possibly 1990, according to Mercer, causing some limits to increase an equivalent of up to three years’ worth of ordinary increases.
According to The Senior Citizens League, a nationwide nonpartisan advocacy group, it appears the annual increase for social security cost of living adjustment will be 5.9% which is the highest in four decades based on CPI data.
Inflation makes goods and services more expensive to purchase, therefore, government agencies recognize that devaluation of the dollar triggers necessary increases in contribution limits to keep in step with retirement needs.
This is a great time to discuss how to get your employees retirement ready and help them set up what they need to live out their golden years as comfortably as possible.
Direct Advisors, LLC has provided bona fide benefit plan consulting and third-party administrative services to merit shop (non-union) construction companies that are subject to the Davis-Bacon Act and state prevailing wage regulations for over 20 years. Our clients are located throughout the United States.