Major Increases Forecast for 2022 Contribution and Benefit Limits

​While the official amounts won’t be announced for a couple of months, an early projection suggests that nearly all qualified retirement plan limits will increase significantly next year.  

Using the Internal Revenue Code’s cost-of-living adjustment and rounding methods, the Consumer Price Index for All Urban Consumers (CPI-U) through July, and estimated CPI-U values for August and September, benefits consultant Mercer has projected that the contribution limits for 401(k), 403(b) and eligible 457 plan elective deferrals (and designated Roth contributions) will increase from $19,500 at present to $20,500 in 2022. 

The 415(c) DC plan maximum annual addition is projected to increase from $58,000 to $61,000 in 2022, and the 414(q)(1)(B) highly compensated employee and 414(q)(1)(C) top-paid group limit is projected to increase from $130,000 to $135,000. 

Other 2022 projected increases include:

• the 415(b) DB plan maximum annuity limit rising from $230,000 to $245,000;
• the 401(a)(17) and 408(k)(3)(C) compensation limit rising from $290,000 to $305,000; and
• the 416(i)(1)(A)(i) officer compensation for top-heavy plan key employee limit jumping from $185,000 to $200,000 (Mercer notes that, with no further inflation after July, this limit would only rise to $195,000).

Only the 414(v)(2)(B)(i) catch-up contribution limit (for plans other than SIMPLE plans), which has a relatively large rounding value, is expected to stay the same next year at $6,500. 

The 2022 limits will reflect increases in the CPI-U from the third quarter 2020 to the third quarter of 2021. Using this measure, inflation will likely reach its highest level since 2008—possibly since 1990—and cause some limits to rise by the equivalent of up to three years’ worth of ordinary increases, the firm suggests.  

The figures cannot be finalized until after September CPI-U values are published in October. The IRS typically announces official limits for the coming year in late October or early November.

Despite the volatile economic environment, Mercer notes that these values should hold, unless August and September inflation is exceptionally high or reverses course, shifting to deflation.

Estimates by The Senior Citizens League (TSCL) show that next year’s annual Social Security cost-of-living adjustment (COLA) could be 6.2% next year, the highest in nearly four decades, based on the July CPI data.