Alert: NQDC Participants Affected By Newly Announced 2015 Limits For Qualified Retirement Plans
November and December are the months when many NQDC plan participants must choose how much of next year’s salary to defer. (See our FAQ on the top issues to consider in this planning opportunity.) Influencing this decision about nonqualified plans are the contribution and benefit limits that apply to qualified retirement plans. These limits are provided under Section 415 of the Internal Revenue Code, and every autumn the IRS announces inflation-adjusted figures for the following year.
Importantly, 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.
| Contribution type/limit | 2015 | 2014 |
| Compensation allowed in qualified deferral and match calculation | $265,000 | $260,000 |
| Elective compensation deferrals | $18,000 | $17,500 |
| Catchup contributions for people aged 50 or older | $6,000 | $5,500 |
| Total defined contribution limits (employee and employer contributions) | $53,000 + catchup contribution | $52,000 + catchup contribution |
| Defined benefit plan payout limits | $210,000 | $210,000 |
| Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation | $170,000 | $170,000 |
| Income threshold defining highly compensated employees for the purposes of nondiscrimination testing | $120,000 | $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.
Increase In Social Security Wage Base
Additionally, the Social Security Administration (SSA) annually increases the wage base used for calculating the Social Security part of FICA taxes, which are owed at NQDC deferral or vesting. In 2015, the Social Security wage cap will be $118,500 (up from $117,000 in 2014). With the 6.2% rate of Social Security tax, the maximum possible Social Security withholding in 2015 is $7,347.
According to the SSA announcement that released these figures, among the estimated 168 million workers in the United States who pay Social Security tax, about 10 million will see an increase in Social Security tax in 2015 because of the increase in the wage base. We can assume that everybody with nonqualified deferred compensation will be among those 10 million people.
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