Payroll and benefits teams now have the numbers they need to set up 2027. On 12 November the Internal Revenue Service said the employee contribution limit for 401(k), 403(b), governmental 457 plans and the Thrift Savings Plan increases to $25,500 in 2027, up from $24,500 for 2026. A separate revenue procedure puts the 2027 affordability percentage for employer health coverage at 10.22%, up from 9.96% for 2026. Both figures sit inside the systems HR runs: the deferral caps in payroll, the testing thresholds in the retirement plan, and the employee premium share set at open enrollment.
What the IRS changed for 2027
The headline figure comes from IRS news release IR-2026-136 and the technical detail from Notice 2026-66, both published on 12 November. The release lists the changes employees will see on their pay statements next year:
- The elective deferral limit for 401(k), 403(b), governmental 457 plans and the Thrift Savings Plan increases to $25,500, from $24,500.
- The standard catch-up limit for employees aged 50 and over increases to $8,500, from $8,000, so most participants aged 50 and older can contribute up to $34,000 in 2027.
- The higher catch-up limit for employees aged 60, 61, 62 and 63, a SECURE 2.0 change, is $11,750 for 2027, up from $11,250.
- The SIMPLE plan contribution limit increases to $17,500, from $17,000.
- The IRA contribution limit stays at $7,500, and the IRA catch-up limit stays at $1,100.
IRS Chief Executive Officer Frank J. Bisignano tied the release to timing. “With the new adjustment in place now, the IRS is giving taxpayers and employers the information needed to make retirement planning decisions for the year ahead,” he said in the release.
The Roth catch-up line moves to $155,000
One line in Notice 2026-66 matters more to payroll than to employees. The Roth catch-up wage threshold, which decides whether an employee’s catch-up contributions to an employer plan in 2027 must be designated as Roth, increases from $150,000 to $155,000. The notice says the threshold applies to wages for 2026. In practice, payroll has to look back at each catch-up-eligible employee’s 2026 wages, compare them with $155,000, and route 2027 catch-up deferrals to Roth for anyone above it. That is a data job across two plan years, and it depends on payroll and the recordkeeper agreeing on who is flagged.
The compensation lines behind plan testing
Notice 2026-66 also moves the thresholds that decide who counts as highly paid for plan purposes. Each one feeds nondiscrimination testing or contribution caps, so each one needs to change in the plan administration system as well as in payroll:
- The highly compensated employee threshold under section 414(q)(1)(B) increases from $160,000 to $170,000.
- The key employee threshold for top-heavy plan purposes increases from $235,000 to $245,000.
- The annual compensation limit under section 401(a)(17) increases from $360,000 to $375,000.
- The overall defined contribution limit under section 415(c)(1)(A) increases from $72,000 to $75,000.
- The defined benefit plan limit under section 415(b)(1)(A) increases from $290,000 to $300,000.
A plan can update its deferral limit and still miss one of these, because they usually sit in a different configuration table from the one payroll edits. For the outcome side of the same plans, see our earlier report, WTW: Employers Can’t Prove Retirement Plans Work.
Affordability rises to 10.22% for 2027 plan years
The health plan number arrived in Rev. Proc. 2026-26. For plan years beginning in calendar year 2027, the required contribution percentage under section 36B is 10.22%. The revenue procedure describes this percentage as the one “used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage” under section 36B. The figure for 2026, set in Rev. Proc. 2025-25, was 9.96%.
The revenue procedure also records a change in how the number is calculated. For 2025 and earlier years, premium growth was based on per enrollee spending for employer-sponsored insurance. Starting with 2026, HHS guidance introduced a measure that captures increases in individual market premiums as well as employer-sponsored premiums, and Treasury and the IRS say they will use that measure for the 2027 adjustment. The same document says the additional adjustment in section 36B(b)(3)(A)(ii)(II) is not required for 2027 because the failsafe exception applies.
In our reading, a higher percentage gives employers a little more room on the employee share of the cheapest self-only option before that option stops counting as affordable. It also changes the arithmetic for any employer that priced 2027 contributions against the 2026 figure. Benefits teams that set rates before Rev. Proc. 2026-26 was published should rerun the check with 10.22%.
What it means for the HR leader
These changes leave plan design alone. The work is configuration: payroll, the retirement plan recordkeeper and the benefits administration platform all have to hold the same 2027 numbers on 1 January, and each hand-off between them is a place where the figures can diverge.
Payroll
Update the deferral cap to $25,500 and the standard catch-up cap to $8,500. Confirm the system can apply the $11,750 limit only to employees who are 60, 61, 62 or 63 in 2027, which needs a reliable date of birth on every record. Build the Roth catch-up flag from 2026 wages against the $155,000 threshold, and agree with the recordkeeper which side calculates it and which side enforces it. For context on how much payroll teams trust automated changes to pay data, see our analysis of four vendors making four different cases for trusting AI agents with pay data.
Retirement plan administration
Load the $170,000 highly compensated threshold, the $245,000 key employee threshold, the $375,000 compensation cap and the $75,000 415(c) limit into the plan administration system. Check that the plan document’s definitions follow the indexed figures rather than a hard-coded amount. Ask the recordkeeper for a test file that shows the new limits applied to a sample of employees near each threshold.
Health benefits
Recalculate affordability for every 2027 plan year using 10.22%. Keep a record of the calculation and the date it was run. Employers that also offer HSA-eligible plans can read our earlier brief, HSA Participation Jumps to 83 Percent.
What to ask your vendors this month
- Have the 2027 limits from Notice 2026-66 been loaded, and on what date will they take effect in production.
- Which system calculates the Roth catch-up flag from 2026 wages, and how will mismatches between payroll and the recordkeeper be reported.
- Has the benefits platform’s affordability check been updated from 9.96% to 10.22% for plan years beginning in 2027.
Ask for written confirmation of each item before the first payroll of January runs.
