Adjustments To Qualified Retirement Plan Limits For 2013: Impact On Nonqualified Deferred Compensation

For people who use myNQDC.com, our sister website, news has emerged that will be important to both professionals and participants in company retirement plans, such as 401(k) and nonqualified deferred compensation (NQDC) plans. Every fall, usually in October, the IRS announces limits that will apply in the following year to contributions made under qualified retirement plans. These numbers are adjusted annually for changes in the cost-of-living index. 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. Earlier this month, the IRS announced the adjustments that apply in 2013. Around the same time, the Social Security Administration also announced an increase in the wage based used for calculating the Social Security part of FICA tax: in 2013, the wage cap will be $113,700 (up from $110,100 in 2012).

Qualified Plan Contributions: Annual Limits That Affect NQ Deferred Comp Plans

Contribution type/limit	2013	2012
Compensation allowed in qualified deferral and match calculation	$255,000	$250,000
Elective compensation deferrals	$17,500	$17,000
Catchup contributions for people aged 50 or older	$5,500	$5,500
Total defined contribution limits (employee and employer contributions)	$51,000 + catchup contribution	$50,000 + catchup contribution
Defined benefit plan payout limits	$205,000	$200,000
Income threshold defining key employees for the purposes of top-heavy plans and the six-month delay on payout upon separation	$165,000	$165,000
Income threshold defining highly compensated employees for the purposes of nondiscrimination testing	$115,000	$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.