IRS Announces 2018 Retirement Plan Cost of Living Adjustments and Work Plan


The IRS has announced cost of living adjustments (COLA) applicable to qualified plans along with the issues they will be focusing on in plan examinations during the coming year.

The limit on elective deferrals to 401(k), 403(b), and 457 plans will increase from $18,000 to $18,500. Catch-up contributions will remain limited to $6,000.

The limitation on contributions to participants (including 401(k) or 403(b) amounts, but excluding catch-up contributions) increases from $54,000 to $55,000. The limit on the annual benefit paid from a defined benefit plan is raised from $215,000 to $220,000.

The annual compensation that can be considered for retirement plan purposes increases from $270,000 to $275,000. The threshold for determining a highly compensated employee remains at $120,000 paid in the prior year.

A full list of the COLA adjustments can be found at the following address:

https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions

In September, the Tax Exempt/Government Entity division of the IRS announced their 2018 compliance program. Their “compliance strategies” for next year include examining plans with the following attributes:

  • Mergers/consolidations: plans with transferred assets due to a merger or acquisition.
  • Discrimination: Plans that have failed the “gateway” test or the Actual Deferral Percentage (ADP) (elective deferrals) or Actual Contribution Percentage (ACP) (matching) tests. Note that 403(b) deferrals are not subject to the ADP test.
  • Disclosure: Plans that fail to provide timely notices to employees, including a safe harbor notice.
  • Coverage: Plans that failed to meet the Universal Availability requirements and other coverage failures for non-403(b) plans.
  • Distributions: Plans that failed to make required minimum distributions, plans that permitted improper hardship withdrawals, or that distributed an incorrect benefit amount.
  • Contributions: Plans that made erroneous allocations of contributions or improper use of forfeitures due to utilization of an incorrect definition of compensation. Also, plans that failed to make matching contributions per the plan terms.
  • Elective Deferrals: Plans that failed to withhold the proper amount of elective deferrals per participant elections, and Section 457 plans with excess deferrals. The IRS will also examine plans with participants that have utilized the special 15-year catch-up contribution available only to 403(b) plans.

In addition to the above issues, the IRS indicated that they will extensively use “Compliance Checks” targeting 403(b) and 457(b) plans. These information requests require only a mailed in response, but can result in an expanded audit.

If you have any concerns over your plans compliance with any of these audit issues, please contact Richard Green at rgreen@windes.com or toll free at 844.4WINDES.

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