Those trying to boost their retirement savings can’t seem to catch a break. First the market freefalls, and now Uncle Sam may put the squeeze on how much you’re allowed to contribute. 

Lower 2009 inflation is likely to require employers to make changes in next year’s 401(k) plans, according to a report released by Mercer.

On Oct. 15 the Internal Revenue Service (IRS) is expected to announce changes required to 2010 retirement plan contributions.

Changes may include:

• A $500 cut in the maximum amount employees can contribute, and
• A $5,000 slice off the maximum income eligible for an employer contribution.

The limits for defined-contribution and defined-benefit plans — including the amount employees can sock away in 401(k)s — are adjusted each year using a formula based on inflation. And as a result of negative inflation this year, 401(k) contribution limits for 2010 may not get a cost-of-living increase.

Although it’s not entirely clear whether the IRS would actually go through with lowering contribution limits based on the formula, should it do so, this would be the first time limits have been adjusted downward.

Currently, employees can contribute up to $16,500 in their 401(k)s on a pre-tax basis or $22,000 if they’re 50 or older. But that amount could be reduced by $500, down to $16,000.

What employers will have to do

If lower contribution limits are set, plan sponsors will need to alter forms and warn workers to cut back if they will max out.

Workers will also have to be notified if lower limits affect benefit accruals in pension plans.

2 ways to ease the pain

Should lower limits get established, some employees are bound to be upset.

Two ways to ease the blow:

• Check whether your 401(k) plan allows after-tax contributions, or
• Encourage employees to set money aside in an IRA, or some other tax-efficient investment.

The survey was conducted by the Mercer consulting firm. Here’s a compilation of the responses (the numbers add up to more than 100% because some companies are trying more than one approach):

• 59% said they intend to keep down rising health care costs in 2009 by raising workers’ deductibles, copays or out-of-pocket spending limits.
• 47% are encouraging enrollment in plans with lower premiums and higher deductibles.
• 19% will start offering a consumer-directed health plan — a high-deductible plan with employee-controlled spending accounts. They encourage employees to save account money by shopping for the best health bargains; the employees can keep the savings for future needs. That’s up from last year’s figure of 12% who said they were very likely to adopt a consumer-directed plan.

More from the study:

• On average, health care costs will go up by an estimated 5.7% next year for workers and their employers. That’s the same as this year’s 5.7%  and slightly less than the 6.1% jump in 2007.
• During that same period, wage increases have averaged slightly under 4%.
• In the last five years, the average health-plan deductible for an individual grew from $250 to $400. For a family, it rose from $1,000 to $1,500.