IRS Announces 2020 Employee Benefit Plan Limits

Overview


The IRS recently announced the cost-of-living adjustments to the applicable dollar limits for various employer-sponsored retirement and welfare plans for 2020. Nearly all of the dollar limits currently in effect for 2019 will experience minor increases for 2020.

In Depth


Recently the Internal Revenue Service (IRS) and the Social Security Administration announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans and the Social Security wage base for 2020. The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2019 and 2020.*

 

RETIREMENT PLAN LIMITS 2019 2020
Annual compensation limit $280,000 $285,000
401(k), 403(b) & 457(b) before-tax contributions $19,000 $19,500
Catch-up contributions (if age 50 or older) $6,000 $6,500
Highly compensated employee threshold $125,000 $130,000
Key employee officer compensation threshold $180,000 $185,000
Defined benefit plan annual benefit and accrual limit $225,000 $230,000
Defined contribution plan annual contribution limit $56,000 $57,000
Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period $225,000 $230,000
ESOP limit for determining the maximum account balance subject to the general five-year distribution period $1,130,000 $1,150,000
HEALTH AND WELFARE PLAN LIMITS
Health Flexible Spending Accounts (FSA)
Maximum salary reduction limit $2,700 $2,750
High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA)
HDHP – Maximum annual out-of-pocket limit (excluding premiums):
Self-only coverage $6,750 $6,900
Family coverage $13,500 $13,800
HDHP – Minimum annual deductible:
Self-only coverage $1,350 $1,400
Family coverage $2,700 $2,800
HSA – Annual contribution limit:
Self-only coverage $3,500 $3,550
Family coverage $7,000 $7,100
Catch-up contributions (age 55 or older) $1,000 $1,000
SOCIAL SECURITY WAGE BASE
Social Security Maximum Taxable Earnings (dollars) $132,900 $137,700

For guidance, please click the links below:

Plan sponsors should update payroll and plan administration systems for the 2020 cost-of-living adjustments and should incorporate the new limits in relevant participant communications, like open enrollment materials and summary plan descriptions.

For further information about applying the new employee benefit plan limits for 2020, contact your regular McDermott lawyer.

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*      The dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan-year, tax-year or limitation-year basis.