How would lacking official inflation-adjusted amounts affect your work?

Imagine there is a US government shutdown in October. (In the past 30 years, shutdowns were 1995—26 days, 2013—16 days, 2018—38 days.) Imagine the shutdown lasts through October.

Imagine the Bureau of Labor Statistics report on inflation to September 30, usually released in October, is not released until late November.

Imagine the Internal Revenue Service’s yearly notice of inflation adjustments for retirement plans, usually released in early November, is not released until mid-December.

What steps would you change or delay while waiting for the IRS’s notice?

Would you put estimates in your software? Or wait for the official notice?

If there is a communication to send, would you:

delay it, if it’s not required by 30 days before 2026?

send it, but describe limits or factors without specifying an amount?

send it, with estimates (flagged as estimated) for each inflation-adjusted amount?

How else might a delay of inflation adjustments affect your work?

We will delay as long as we can, but will timely deliver notices with the current limits if the new limits are not available.  We will then update as needed.  Its not ideal but manageable for us.

I don't like the idea of estimates in notices.

There is a lot of information in the annual notices going out to calendar year plans by December 1 that needs to be communicated to participants, so those will go out as scheduled.  If a communication typically includes the annual limits, we will use the current limits with a comment that the limits will be adjusted when the updated limits are available.

Probably the bigger headache will be if there is a change in the High Paid Individual compensation level that does not get released until very late in December or later.  This would be an issue particularly for a plan that gathers separate affirmative elections for Catch-Up Contributions. Granted, it won't affect the vast majority of participants, but it will affect enough to consume precious time.

About disfavoring estimates in participant communications:

Do you disfavor it because you worry that, despite an “estimated” explanation, some readers might perceive an amount as somehow more settled than it is?

If a worry is about what some readers perceive, why would communicating amounts that likely won’t apply for 2026 be better?

Or, does a plan’s administrator communicate old amounts because one believes doing so somehow involves less discretion about what to communicate?

What if the adjusted amount is almost a certainty? For example, if inflation through August was more than enough to surpass the next increment of rounding and any further inflation in September won’t be enough to meet another increment of rounding? Does that affect your thinking about whether to communicate an estimated amount? Or is your view about not communicating an estimated amount unaffected by one’s confidence in the estimate?

These are open-inquiry questions. I seek to learn what BenefitsLink neighbors think about how to manage ambiguity.

Is there a definition of "official inflation-adjusted amount"?  Since citizens/taxpayers are entitled to interpret the Internal Revenue Code on their own, would a statute-defined increase not apply solely because the IRS has not made any identifying statement?  What if the IRS never issues any "official" statement?  Can such failure to issue a notice be equivalent to "no increase applies"?  Is it reasonable to not increase the 402g limit merely because the IRS ignored/failed to issue some "official" document, especially since you know it should be increased?  Similarly, what about an increase in the 415(b) limit, knowing that some participant purposely waited for that increase before taking a LS distribution from his/her DB plan?

IMHO, issuing EE communication that ignores an increase (i.e., using the prior year amounts) or failing to apply a statute-defined increase seems to abdicate reasonableness and common sense. 

In case you cannot determine from my rhetoric, my suggestion would be to calculate any applicable limit as best you can.  (There is at least one publicly available calculation spreadsheet here on BenefitsLink.  Several private parties, actuarial consulting firms, CPA firms, attorneys, etc. also do the same.)

5 hours ago, Peter Gulia said:

Imagine there is a US government shutdown in October. (In the past 30 years, shutdowns were 1995—26 days, 2013—16 days, 2018—38 days.) Imagine the shutdown lasts through October.

For context, the 2018 limits were announced by IRS on or about November 15.

David Rigby, thank you for describing a different outlook.

About your idea that a statute provides what it provides, and that a provision might not be conditioned on whether an executive agency publishes or omits some further act, there is at least some room for a range of interpretations.

Even the now-overruled Chevron doctrine never required deferring to an agency’s interpretation of an unambiguous statute. Now, the Supreme Court’s Loper Bright Enterprises decision holds that a court may consider but does not defer to an executive agency’s rule that interprets a statute.

But Loper Bright Enterprises left some room for what the parlance calls a legislative rule—one that implements Congress’s delegation to the agency.

Further, reasoning minds differ about how to interpret or apply a statute that includes Congress’s direction that an executive agency do a specified thing.

Some of the Internal Revenue Code’s many provisions about inflation adjustments, even if otherwise unambiguous, call for “the Secretary” to set the adjustment. For example:

The Secretary shall adjust annually—

(A) the $160,000 amount in subsection (b)(1)(A),

(B) in the case of a participant who is separated from service, the amount taken into account under subsection (b)(1)(B), and

(C) the $40,000 amount in subsection (c)(1)(A),

for increases in the cost-of-living in accordance with regulations prescribed by the Secretary.

Internal Revenue Code of 1986 (26 U.S.C.) § 415(d)(1) http://uscode.house.gov/view.xhtml?req=(title:26%20section:415%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section415)&f=treesort&edition=prelim&num=0&jumpTo=true;

26 C.F.R. § 1.415(d)-1 https://www.ecfr.gov/current/title-26/section-1.415(d)-1.

Neither that paragraph of I.R.C. § 415(d) nor Treasury’s implementing rule specifies what amount applies if the Commissioner of the Internal Revenue does not publish in the Internal Revenue Bulletin an adjustment.

Although I.R.C. § 415(d)(2)-(4) specifies the measures and formula, reasoning minds might differ about whether some act of the Treasury department or its Internal Revenue Service is or isn’t needed to set an adjustment.

******

About a fiduciary’s duty of communication, courts’ interpretations that a fiduciary should communicate information a participant needs to enable her to make informed choices suggest that in some circumstances a prudent fiduciary might prefer to communicate reasonably anticipated or estimated information, with an explanation that it is not yet determined.

******

At least some of the adjustments for 2026 seem obvious. For example, I don’t see how the § 414(v)(7) amount could be less than $150,000 (adjusted from $145,000).

******

Neither of 2018’s shutdowns—one that began January 20, and another that began December 22—resulted in furloughs during October, when ordinarily BLS assembles September inflation measures and IRS determines inflation adjustments.

******

BenefitsLink neighbors, do you have different or further observations?

The reason for my suggestion to use the current limits along with a comment that the limits will be adjusted when the updated limits are available is to decrease the possibility of operational errors. 

None of the limits are going down without some legislative action.  All of the limits currently announced late in each year are effective in the next year.  Almost every participant will have an effective opportunity in that next year to take advantage of any increase in limits.  If, in the very unlikely event an estimated limit is used and it turns out that limit is not adjusted upwards, then there is the possibility for having excess amounts/benefits in the plan which would require a correction.

There is a distinction between predicting the limits in communications (which is fine if they are labeled as estimates) and using predicted limits in operating the plan (which can cause problems).

Thanks. With your explanation, I see how some plans’ administrators and service providers might prefer not to separate communications from operations. And how some might prefer using cautious amounts until the IRS-announced amounts become available.