Cut 401k Contirbution Limits?

[goldtpa]

Does anyone really think that the 16,500 will be reduced to 16,000 due to deflation???USA Today - In 2010 IRS could cut 401(k) contribution limit to $16,000

[J Simmons]

If Social Security payments might deflate, as widely reported earlier this week, why not the 402g limits too?

[david rigby]

As best I recall, the SS cola is not permitted to be negative.

[Mike Preston]

No one knows, at this point, whether the IRS will deflate the 401(k) limits. I think the 415 limits for DB plans are pretty safe. The 415 limits for DC plans are another matter.

The SS payments that you read about deflating are due to the inflation factor applying to the Medicare premium reduced against a stagnant SS amount. That means those who have their Medicare premiums automatically paid from their SS check will see that check go down.

[mbozek]

No one knows, at this point, whether the IRS will deflate the 401(k) limits. I think the 415 limits for DB plans are pretty safe. The 415 limits for DC plans are another matter.

The SS payments that you read about deflating are due to the inflation factor applying to the Medicare premium reduced against a stagnant SS amount. That means those who have their Medicare premiums automatically paid from their SS check will see that check go down.

I thought that medicare premiums cannot increase in years where there is no SS COLA increase. However, about 25% of medicare beneficaries are not protected by this provision because they do not receive SS benefits. In addition the medicare Part D drug premium which is paid from social security benefits will increase in 2010.

Also IRC 415(d)(1)(A) and (B) provide that the 160,000 limit for DB plans and the 40,000 limit for DC plan shall be adjusted annualty for cost of living increases. What is the authority that authorizes a reduction for a decrease?

[Tom Poje]

the Code 415(d) Cost of living adjustments

describes how the limits are calculated.

you take the 3 CPI-U factors for the quarter July - Aug for a given year and divide by the the base period factors from July -Aug 2001 which were 177.5, 177.5, and 178.3 = 533.3

there is nothing in here that says they can't decrease that I am aware of it.

(these rules apply for the other limits as well (e.g. compensation, 402(g) etc)

the website for finding the factors is http://data.bls.gov/cgi-bin/surveymost?cu

click on the first choice

the latest factor is released roughly the 20th of each month

so the most current factors (May, June July are

213.856, 215.693 and 215.351 = 644.9

644.9 / 533.3 * (160,000) = 193,488

since adjustments are made in increments of 5000, this implies the limit for next year would be 190,000

which would be a drop from 195,000.

402(g)(4) says the base period is July-Aug 2005 (and a base amount of 15,000), so you would have to make some adjustments to see the effect for the deferral limit. 9e.g. the base afactor is 590.6 instead of 533.3)