Share the 2025 Cost of Living Adjustment Announcement with Your Clients

The IRS recently announced the Cost of Living Adjustment (COLA) with the defined contribution plan annual additions limit increasing from $69,000 to $70,000. For financial professionals working with retirement plan sponsors or highly compensated employees, share this important adjustment with your plan sponsors and their plan participants. Consider potential changes to their plans as soon as possible to ensure they stay on track for a secure retirement.

What is COLA?

Intended to ensure that the purchasing power of wages or benefits remains stable despite rising prices, the COLA is an annual, federally set guideline that indicates an appropriate increase in benefits and contributions to counteract inflation. It’s based on the percentage increase in the average Consumer Price Index (CPI) between the third quarters of the current and previous years.

How will the updated COLA affect retirement plans?

The new COLA will affect the contribution limits for various retirement plans, including 401(k), 403(b) and 457 plans. For participants aged 50 and above, the catch-up contribution limits will also be adjusted. This change allows older employees to contribute more towards their retirement savings, helping them better prepare for their future. This year’s notice also includes the SECURE 2.0 Super Catch-up amount for participants ages 60-63 for 401(k), 403(b) and 457 plans.

Review our updated chart on the increased limits for benefits and compensation.

What’s particularly important about this most recent COLA announcement?

Fueled by concerns over economic slowdowns, recent interest rate changes and tech stock volatility, the financial marketplace is facing an unusual amount of turbulence. For participants eager to maximize their retirement benefits, the adjustment to contribution limits may encourage them to alter their contribution amounts. In addition, with the COLA trending down in 2025 after years of historic highs, participants may be looking for clarification on what the different COLA rates may mean for them.

Importantly, the COLA also updates the compensation limits for determining contributions to retirement plans. If you have highly compensated employees who are not contributing as much as they might to help ensure their future stability, it may be a good opportunity to review the entire retirement plan strategy.

How to make the most of the IRS COLA announcement

First, take time to review our updated chart on the increased limits for benefits and compensation. Then, consider taking the following steps to help inform your retirement plan sponsors and their plan participants.

Review and update plans: Ensure all sponsored retirement plans are updated with the new contribution and compensation limits.

Schedule plan sponsor meetings: Discuss how the new COLA affects their retirement strategies and identify any new gaps or opportunities that their plan could address.

Provide educational materials: Share updated materials and resources with your plan sponsors explaining the changes and their implications. Ameritas offers a comprehensive range of participant-ready educational materials that cover many elements of the retirement planning process. Contact us today to learn more.

Read additional information about the 2025 COLA announcement from the IRS.