ARTICLE
6 November 2024

Government Announces 2025 Employee Benefit Plan Limits

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McDermott Will & Emery

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The Internal Revenue Service (IRS) has announced the cost-of-living adjustments to the applicable dollar limits for various employer-sponsored retirement and welfare plans for 2025.
United States Employment and HR

The Internal Revenue Service (IRS) has announced the cost-of-living adjustments to the applicable dollar limits for various employer-sponsored retirement and welfare plans for 2025.

Most of the dollar limits that are subject to adjustment for cost-of-living increases will increase for 2025. The Social Security Administration released separate adjustment amounts.

In Depth

The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2024 and 2025.*

RETIREMENT PLAN LIMITS (guidance link) 2024 Δ 2025
Annual compensation limit $345,000 $350,000
401(k), 403(b) & 457(b) before-tax contributions $23,000 $23,500
Catch-up contributions (if age 50 or older) $7,500 = $7,500
Catch-up contributions (individuals who attain age 60, 61, 62, or 63 in 2025) N/A $11,250
Highly compensated employee threshold $155,000 $160,000
Key employee officer compensation threshold $220,000 $230,000
Defined benefit plan annual benefit and accrual limit $275,000 $280,000
Defined contribution plan annual contribution limit $69,000 $70,000
Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period $275,000 $280,000
ESOP limit for determining the maximum account balance subject to the general five-year distribution period $1,380,000 $1,415,000
HEALTH AND WELFARE PLAN LIMITS (guidance links here and here) 2024 Δ 2025
Health Flexible Spending Accounts
Maximum salary reduction limit $3,200 $3,300
Health FSA Carryover Limit $640 $660
Dependent Care Flexible Spending Accounts±
If employee is married and filing a joint return or if the employee is a single parent $5,000 = $5,000
In employee is married but filing separately $2,500 = $2,500
Excepted Benefit Health Reimbursement Arrangements (EBHRAs) $2,100 $2,150
Qualified Transportation Fringe Benefit and Qualified Parking (monthly limit) $315 $325
High-Deductible Health Plans (HDHP) and Health Savings Accounts (HSA)
HDHP – Maximum annual out-of-pocket limit (excluding premiums):
Self-only coverage $8,050 $8,300
Family coverage $16,100 $16,600
HDHP – Minimum annual deductible:
Self-only coverage $1,600 $1,650
Family coverage $3,200 $3,300
HSA – Annual contribution limit:
Self-only coverage $4,150 $4,300
Family coverage $8,300 $8,550
Catch-up contributions (age 55 or older)± $1,000 $1,000
SOCIAL SECURITY WAGE BASE (guidance link) 2024 Δ 2025
Social Security Maximum Taxable Earnings $168,600 $176,100

Plan sponsors should update payroll and plan administration systems for the 2025 cost-of-living adjustments and incorporate the new limits into relevant participant communications, like open enrollment materials and summary plan descriptions.

For further information about applying the new employee benefit plan limits for 2025, contact your regular McDermott lawyer or one of the authors below.

* The dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan-year, tax-year or limitation-year basis.

± Not indexed for cost-of-living adjustments, with the exception of limited guidance issued for certain years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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