Over the last year, defined contribution plan participants likely have felt like they just can’t get a break. I’m sorry to say a little bird at Mercer tells me the savings outlook may not improve next year, depending on the results of a government calculation.
Here’s the breakdown: Limits for DC and DB plans — including 401(k) deferrals and catch-up contributions — are adjusted each year based on an IRS calculation that, among other factors, takes inflation into account. As inflation the last several months has been negative, this mythical government calculator could produce limits for 2010 that are lower than those currently in effect for 2009. If that occurs, employers will be looking to the IRS to decide if the limits will remain unchanged for 2010, or be reduced.
It’s hard for me to fathom that the IRS would actually reduce contribution limits, given the current economic environment and the fact that savings rates are so abysmal that few even reach the limits anyway. But, there you have it.
Mark your calendars, though. The IRS is expected to announce 2010 retirement plan limits on Oct. 15 — the date the Bureau of Labor Statistics releases the September consumer price index.
Meanwhile, Mercer advises plan sponsors use a “just in case” approach by assessing the implications for participant communications, financial planning tools, benefit calculation systems and discrimination tests. DB and money purchase pension plan sponsors should identify participants who could be affected by lower limits and discuss with counsel whether they would need to provide 45 days' advance notice of the reduction.
