IRS Releases Covered Compensation Tables for the 2023 Plan Year

On December 8, 2022, the IRS released Revenue Ruling 2022-24, which provides covered compensation tables for the 2023 plan year. The tables can be used in determining benefits for qualified plans that use a permitted disparity formula for employer-provided contributions or benefits.

A permitted disparity contribution formula allows an employer to provide additional benefits to employees whose compensation exceeds certain levels, such as the Social Security wage base, without violating applicable nondiscrimination requirements. All employees receive employer-provided Social Security benefits based on their compensation up to the taxable wage base, but not on compensation beyond that level. Under the permitted disparity rules, an employer’s contribution formula can be integrated with Social Security to take this difference into account, within certain limits.

The regulations define covered compensation as the average of the taxable wage bases in effect for each calendar year during the 35-year period ending with the last day of the calendar year in which the employee reaches the Social Security retirement age. For purposes of determining covered compensation for the 2023 year, the taxable wage base is $160,200. To determine an employee’s covered compensation, a plan can use the IRS-provided tables listed in the Revenue Ruling, which are developed by rounding the actual amounts of covered compensation for different years of birth.

Employers who sponsor retirement plans that use a permitted disparity formula for employer contributions should be aware of the ruling and availability of the updated tables.

Revenue Ruling 2022-24 »