Adapting to 2025 COLA Changes for Plan Sponsor

The onset of 2025 brings with it a series of adjustments for plan sponsors. The Internal Revenue Service (IRS) and the Social Security Administration have revealed the 2025 cost-of-living adjustment (COLA) figures for both defined benefit (DB) and defined contribution (DC) retirement plans, as well as Social Security benefits. The Pension Benefit Guaranty Corporation (PBGC) has also shared the updated premium rates for single-employer and multiemployer DB plans for 2025. This article provides the 2025 limits and compares them with the limits for 2024 and 2023. 

Key COLA Changes for 2025 

Retirement Plans Compensation and Benefits Limits 

To illustrate these changes, let's examine the new limits set for various aspects of retirement planning: 

Plan Feature	2025	2024	2023
Maximum annual annuity for DB plans	$280,000	$275,000	$265,000
Maximum annual additions for DC plans	$70,000	$69,000	$66,000
Maximum §401(k), §403(b), and §457(b) deferral	$23,500	$23,000	$22,500
Catch-up contributions (age 50)	$7.500	$7,500	$7,500
Increased Catch-up contribution limit (age 60-63)	$11,250	N/A	N/A
Compensation limit	$350,000	$345,000	$330,000
Highly compensated employee threshold	$160,000	$155,000	$150,000
Key employee / Officer compensation limit	$230,000	$220,000	$215,000
Emergency savings account contribution limit	$2,500	$2,500	N/A

PBGC Premiums for DB Plans 

Plan Type	2025	2024	2023
Single-employer plan flat rate premium	$106	$101	$96
Variable rate premium per $1,000 UVB	$52	$52	$52
Maximum VRP per participant	$717	$686	$652
Multiemployer plan flat rate premium	$39	$37	$35

Social Security and Health Plan Thresholds

Feature	2025	2024	2023
Social Security taxable wage base	$176,100	$168,600	$160,200
Maximum OASDI tax	$10,918.20	$10,453.20	$9,932.40
Maximum monthly Social Security benefit at full retirement age	$4,018	$3,822	$3,627
HSA contribution limit (self-only)	$4,300	$4,150	$3,850
HDHP minimum deductible (self-only)	$1,650	$1,600	$1,500

The Changes Under the SECURE 2.0 

Under SECURE 2.0, defined contribution (DC) plans offering catch-up contributions will be able to provide higher catch-up limits for participants aged 60, 61, 62, or 63 starting in 2025. The new limit will be the greater of $10,000 or 150% of the regular catch-up limit, adjusted for inflation.  The increase catch-up limit for 2025 is set at $11,250. 

Adapting to These Changes 

For plan sponsors, adapting to these changes is not just about compliance but also about ensuring their retirement plans remain competitive and aligned with participants' expectations. Engaging in proactive planning, effective communication with plan participants, and consultation with financial and legal advisors are steps towards smooth adaptation. Additionally, understanding the broader impact of these adjustments on plan design and participant benefits is crucial. 

Contact RPCSI for more information.