Social Security benefits payable in 2020 will increase by 1.6%, the Social Security Administration (SSA) announced Oct. 10 in updates that include the 2020 taxable wage base and the 2018 national average wage. PBGC likewise has released inflation-indexed premium amounts for next year, and Mercer has estimated the maximum guaranteed benefit for 2020. IRS has yet to issue 2020 covered compensation, but Mercer has projected those tables using the published taxable wage base.
The print-friendly PDF provides tables showing these key Social Security and PBGC amounts for 2020 and prior years. Here are highlights of what those tables cover.
The announced 1.6% cost-of-living increase for 2020 Social Security benefits reflects the change in the third-quarter CPI for Urban Wage Earners and Clerical Workers (CPI-W) from 2018 to 2019. Other 2020 Social Security amounts are tied to the 3.6% increase in average annual wages from 2017 to 2018. The table in the print-friendly PDF shows key Social Security values for 2018–2020 from SSA’s 2020 fact sheet and automatic determinations webpage.
On Oct. 11, PBGC announced inflation-adjusted 2020 premium rates and the variable-rate premium cap. Starting in 2020, all premium amounts — including the per-participant variable-rate premium cap — will be indexed annually for wage inflation.
PBGC hasn’t yet announced the maximum guaranteed benefit for plans terminating in 2020, but Mercer projects the limit will rise to $69,750 from $67,295 in 2019. This amount is determined using the Social Security “old law” contribution and benefit base. 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 PBGC can recover other amounts from the plan sponsor.
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. The IRS rounds Social Security retirement ages up to the next higher integer for covered compensation purposes, even though the actual Social Security full retirement age increases in two-month increments. Qualified plans have the option to determine permitted or imputed disparity using either actual or rounded covered compensation.
IRS has not yet issued 2020 covered compensation tables, but Mercer has projected these amounts based on the increase in the taxable wage base to $137,700 for 2020 from $132,900 for 2019. One table in the print-friendly PDF 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.) Another table shows projected 2020 amounts for individuals below Social Security full retirement age