2025 Social Security, PBGC projected covered compensation figures 

November 5, 2024

 

Social Security benefits payable will increase by 2.5% in 2025, the Social Security Administration (SSA) announced on Oct. 10 in updates that include the 2025 taxable wage base and the 2023 national average wage. The Pension Benefit Guaranty Corp. (PBGC) released its inflation-indexed 2025 premium amounts, maximum guaranteed benefit for single-employer pension plans and present value of the maximum guarantee. IRS has not yet issued 2025 covered compensation amounts, but Mercer has projected those figures using the published taxable wage base.

The 2.5% cost-of-living increase for 2025 Social Security benefits reflects the change in the third-quarter Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from 2023 to 2024. Other 2025 Social Security amounts are tied to the 4.43% increase in average annual wages from 2022 to 2023. The following table shows key Social Security values for 2023–2025 from SSA’s 2025 fact sheet and automatic determinations webpage.

The notice includes a series of questions relevant to developing guidance for sponsors of DC plans that will accept saver’s match contributions and their service providers, as well as potential participant notice requirements for plans that choose not to accept these contributions. Many of these questions ask for input on specific aspects of the saver’s match, but the agencies also seek general feedback on other ways to minimize costs and administrative burdens to encourage retirement plans to accept these contributions, as well as streamlining the process for individuals to claim the saver’s match.

On Oct. 11, PBGC announced inflation-adjusted 2025 premium rates and the variable-rate premium cap.  With the exception of the variable rate premium, all premium amounts — including the per-participant variable-rate premium cap — are indexed annually for wage inflation.

On Oct. 18, PBGC announced that the maximum guaranteed benefit at age 65 for terminating plans will rise to $89,181 in 2025 from $85,295 in 2024. This amount is determined using the Social Security “old law” contribution and benefit base (see Social Security and SSI amounts). The maximum guaranteed benefit is adjusted if benefit payments start before (or after) age 65 or are paid in a form other than a single-life annuity. Some of the guaranteed amount may be paid from the plan’s assets, and participants may receive more if the plan is better funded or if PBGC can recover other amounts from the plan sponsor.

^{*Not indexed after 2023}

 

On Nov. 4, PBGC published the 2025 present value of the maximum guarantee table. These values are used to administer Internal Revenue Code (IRC) Section 436 restrictions on lump sums and other accelerated payments from underfunded plans. Plans at least 60% but less than 80% funded may only pay lump sums (or other accelerated distributions) up to the lesser of (i) 50% of the present value of the benefit otherwise payable or (ii) the present value of the participant's PBGC maximum guarantee. Plans subject to the restrictions must use the 2025 table for annuity starting dates in 2025, regardless of the plan year.

The present values will increase significantly from 2024 levels due to the increase in the age-65 maximum guaranteed benefit and the decrease in interest rates (August 2024 IRC Section 417(e) lump sum segment rates of 4.50%, 4.96%, and 5.40% vs. the August 2023 rates of 5.45%, 5.52%, and 5.43%) — and to a lesser extent from the update in the Section 417(e) mortality table.

The next table shows the present values for 2025 and the two prior years. Tables of present values dating back to 2008 are available on the PBGC website, along with downloadable Excel tables.

Qualified defined benefit (DB) pension plans use covered compensation to determine “permitted disparity” under Section 401(l) design-based safe harbor rules and “imputed disparity” under Section 401(a)(4) general nondiscrimination testing rules. Covered compensation is the average Old-Age, Survivors and Disability Insurance (OASDI) contribution and benefit base for the 35 years ending with the year the employee reaches Social Security retirement age. Qualified plans have the option to determine permitted or imputed disparity using either actual or rounded covered compensation.

IRS has not yet issued 2025 covered compensation tables, but Mercer has projected these amounts based on the increase in the taxable wage base to $176,100 for 2025 from $168,600 for 2024. The table below shows covered compensation amounts for individuals who have already reached Social Security full retirement age. (At that age, covered compensation becomes fixed and is no longer affected by annual changes in the OASDI contribution and benefit base.)

This table shows Mercer’s projected 2025 amounts for individuals below Social Security full retirement age.

• Present value of PBGC maximum guarantee (PBGC, Nov. 4, 2024)
• Maximum guaranteed benefit tables (PBGC, Oct. 18, 2024)
• Premium rates for 2025 and earlier years (PBGC, Oct. 11, 2024)
• Press release on Social Security COLA for 2025 (SSA, Oct. 13, 2024)
• Automatic determinations (SSA)

• Quick benefit facts and COLA resources for benefit plans (2020–2024)