With the publication of the July 2023 consumer price index (CPI) of 3.2% for the 12 months ended July 31, 2023, 10 of the monthly CPI rates are set and there are only two more monthly CPI factors (August and September 2023) that will be used in calculating next year’s annual limits.
Our initial forecast in May 2023 can be found here. It includes information about the limits for qualified retirement plans, how these limits are calculated, how they are affected by SECURE 2.0, and why they may be relevant for certain plan sponsors.
July 2023 forecast
Our limit forecast is projected using two assumption sets. One set is based on the current trailing 12 months of CPI and the second assumes that year-to-date CPI (since September 30, 2022) will continue to increase each month through September 30, 2023, by an estimated 25 basis points (3.0% annual).
Historical rolling 12-month changes in CPI as of each September 30 through 2022, and through July 31 for the current federal fiscal year (FFY), are shown in Figure 1.
Figure 1: Historical 12-month percentage change each September 30, Consumer Price Index, all items, not seasonally adjusted
Source: U.S. Bureau of Labor Statistics.
The CPI as reported by the BLS for the 12 months ended July 31, 2023, was 3.2%, up from 3.0% for the 12 months ended June 30, 2023. This 0.2% increase changed the forecast for one of the 2024 IRS limits from our June forecast. It is down significantly from the 8.2% annual change in CPI as of September 30, 2022, but still higher than the 2.5% average annual change over the past 10 and 20 years.
Since September 30, 2022, CPI has increased about 3.0%. Projecting monthly increases of 0.25% through September 2023 results in an annual increase of 3.5% for our 10-month actual, two-month forecast.
The chart in Figure 2 at the bottom of the article shows the limit forecasts under both assumption sets. Values that changed from the June forecast are in bold in that figure.
An analysis of the cumulative two-month changes in CPI for August and September 2023 that would result in the limits increasing or decreasing from this July forecast are shown here (using the IRS rounding rules):
| Change in CPI for August and September 2023 | Change in 2024 IRS limits |
|---|---|
| Increase of slightly more than 0.31% per month, i.e., ~0.62% for two months | Increase in compensation limit and maximum annual addition for defined contribution (DC) plans compared to the July forecast |
| Decrease of slightly more than -1.15% per month, i.e., ~ -2.29% for two months | Decrease in compensation limit, maximum annual annuity pension, maximum annual addition for DC plans, and highly compensated employee (HCE) dollar amount compared to the July forecast |
As a comparison, the CPI increase in July 2023 of 0.2% is higher than the decrease of 0.01% in CPI back in July 2022, resulting in the 0.2% increase in the 12-month cumulative rate mentioned above.
BLS is expected to release the August CPI results on September 13, 2023, at which time this forecast will be updated.
Figure 2: 2024 IRS limits forecast using actual Federal Fiscal Year 2023 CPI as of July 31, 2023
| 2023 IRS limits | Estimated 2024 IRS limits | Dollar increases from 2023 limit | |||
| Category of annual IRS limits | Actual 12-month trailing CPI as of 7/31/2023 | 10-month actual 7/31/2023, 2 months forecast to 9/30/2023 | Actual 12- month trailing CPI as of 7/31/2023 | 10-month actual 7/31/2023, 2 months forecast to 9/30/2023 | |
| Maximum annual annuity pension for DB plans | $265,000 | $275,000 | $275,000 | $10,000 | $10,000 |
| Maximum annual addition for DC plans | $66,000 | $68,000 | $68,000 | $2,000 | $2,000 |
| Maximum §401(k), §403(b), §457 deferral for DC plans | $22,500 | $23,000 | $23,000 | $500 | $500 |
| Catch-up contribution limit for DC plans | $7,500 | $7,500 | $7,500 | $0 | $0 |
| Compensation Limit | $330,000 | $340,000 | $340,000 | $10,000 | $10,000 |
| HCE dollar amount | $150,000 | $155,000 | $155,000 | $5,000 | $5,000 |
| Key Employee / Officer Compensation | $215,000 | $220,000 | $220,000 | $5,000 | $5,000 |
| SECURE 2.0 (New) | Actual 2024 limit | ||||
|---|---|---|---|---|---|
| Contribution limit to ESAs for DC plans | N/A | $2,500 | |||
| Prior year wage threshold triggering Roth catch-up contributions to DC plans | N/A | $145,000 | |||
Values in bold have changed from the June 30, 2023, forecast
Actual 12-month trailing CPI-U of 3.2% ending July 31, 2023
Actual 10-month CPI-U ending July 31, 2023, and 0.25% per month for August and September 2023
Please contact your Milliman consultant for details and questions about how these limits apply to your retirement plan(s).