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2016 Inflation Adjustments

Following recent announcements by both the IRS and the Social Security Administration, we now know most of the dollar amounts that employers will need to administer their benefit plans for 2016. The key dollar amounts for retirement plans and individual retirement accounts (“IRAs”) are shown on the front side of this card.

The card’s reverse side shows a number of dollar amounts that employers will need to know in order to administer health flexible spending accounts (“FSAs”), health savings accounts (“HSAs”), high-deductible health plans (“HDHPs”), and health plans that are not grandfathered under the Affordable Care Act.

Because of last year’s unusually low rate of inflation, none of the retirement-plan limits have changed. Thus, the annual 401(k), 403(b), or 457(b) deferral limit will remain $18,000; the annual retirement plan catch-up contribution limit will remain $6,000; the Section 415 limit on annual additions to a participant’s account will remain $53,000; and the annual compensation limit will remain $265,000.

The annual compensation threshold used to identify highly compensated employees (“HCEs”) will remain $120,000 for 2016. Technically, the 2016 limit will not become relevant until 2017, when employers will “look back” at their employees’ 2016 compensation. In identifying HCEs for 2016, employers should consider their employees’ 2015 compensation (for which the limit was also $120,000), as well as 5% owners during either 2015 or 2016.

The annual limit on IRA contributions (whether traditional or Roth) will remain at $5,500, and the annual limit on IRA catch-up contributions will remain at $1,000. The Social Security taxable wage base (important for retirement plans that are “integrated” with Social Security) will remain $118,500.

The maximum contribution to an HSA will remain $3,350 for individual coverage, but will increase from $6,650 to $6,750 for family coverage. The maximum HSA catch-up contribution will remain at $1,000.

The minimum deductible for any HDHP (which must accompany any HSA) will remain $1,300 for individual coverage and $2,600 for family coverage. For 2016, the limit on total annual HDHP out-of-pocket expenses (deductibles, co-payments, and other amounts – but not premiums) will increase from $6,450 to $6,550 for self-only coverage, and from $12,900 to $13,100 for family coverage.

The 2016 maximum out-of-pocket limits for “essential health benefits” provided under all non-grandfathered health plans will increase more significantly than the HDHP limits – from $6,600 to $6,850 for individual coverage, and from $13,200 to $13,700 for family coverage. This is because (as explained in our May 2014 article) the out-of-pocket limits for essential health benefits are adjusted using the “premium adjustment percentage” calculated by the Department of Health and Human Services, whereas the maximum HDHP out-of-pocket expense is adjusted on the basis of the Consumer Price Index.

The 2016 limit on employee deferrals to health FSAs will remain unchanged at $2,550. This limit applies only to salary reduction contributions under a health FSA and not to employer contributions. For this purpose, however, any employer FSA contributions that could have been received in cash are treated as salary reduction contributions.

A laminated version of our 2016 limits card is available upon request. To obtain one or more copies, just ask any member of our Employee Benefits Group. Or contact the Spencer Fane Marketing Department at either 816.474.8100 or marketing@spencerfane.com.