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myNQDC.com Alert (Oct. 25, 2012): Impact On NQDC Plans Of 2013 Adjustments To Qualified Retirement Plan Limits

Editor's Note: The alert below concerns our sister website myNQDC.com, a resource about nonqualified deferred compensation that is a separate publication from myStockOptions.com. The alert was sent by email to registered users of myNQDC.com on Oct. 25, 2012.

Every fall, usually in October, the IRS announces limits under Section 415 of the Internal Revenue Code that will apply in the following year to contributions and benefits made under qualified retirement plans, such as 401(k) plans. These numbers are adjusted annually for changes in the cost-of-living index. The contribution limits of qualified plans form the major reason for the existence of nonqualified plans: to allow executives and key employees to save additional amounts for retirement with an elective nonqualified plan or an excess 401(k) plan.

Last week, the IRS announced the adjustments that apply in 2013. Also last week, the Social Security Administration announced an increase in the wage based used for calculating the Social Security part of FICA taxes: in 2013, the wage cap will be $113,700 (up from $110,100 in 2012). All of the content at myNQDC.com has been updated for the 2013 figures.

Qualified Plan Contributions: Annual Limits That Affect NQ Deferred Comp Plans

Contribution type/limit

2013

2012

Compensation allowed in qualified deferral and match calculation

$255,000

$250,000

Elective compensation deferrals

$17,500

$17,000

Catchup contributions for people aged 50 or older

$5,500

$5,500

Total defined contribution limits (employee and employer contributions) $51,000 + catchup contribution $50,000 + catchup contribution
Defined benefit plan payout limits

$205,000

$200,000

Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation

$165,000

$165,000

Income threshold defining highly compensated employees for the purposes of nondiscrimination testing

$115,000

$115,000

For a table comparing the features of 401(k) plans and NQDC plans, and their relative advantages and disadvantages, see an FAQ on myNQDC.com.