For the first time in three years, the IRS has increased the annual 401(k) contribution limit for 2018. The annual limit was increased $500, to $18,500. The catch-up contribution limit remains unchanged at $6,000, resulting in a total contribution limit of $24,500 for individuals over the age of 50. Additionally, the annual compensation limit was increased, from $270,000, to $275,000 in 2018.
The full listing of contribution and compensation limits can be found at the IRS website here.
While companies review their payroll systems to program in the new limits, Barnes Dennig recommends that they also take the opportunity to review their plan document definition of compensation eligible for deferrals, and verify that it is consistent with how the payroll system is calculating the deferrals. As new pay codes are utilized, payroll systems are changed, or the plan is restated, there are many opportunities for errors. The most common errors that we see are related to bonuses, over-time and paid time off. The incorrect application of plan compensation continues to be a common error identified by the regulators as well as in our audits. These errors can result in significant corrections as the Company can be required to reimburse the plan for a portion of the missed deferrals and the associated employer matching contributions.
If you have questions about the increased contribution limits, reviewing your payroll system for potential common errors or anything else related to your plan, please call Barnes Dennig at 513-241-8313 or click here to have a member of the employee benefit plan team call you. We hope to speak with you soon!