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COLAs in the Time of COVID-19

On October 26, 2020, the Internal Revenue Service (IRS) updated various dollar limitations that apply to tax-qualified retirement plans for 2021. The new amounts, published in Notice 2020-79, are annually adjusted for cost of living. Despite the potential impact of COVID-19 on employee pay, most of the annual compensation limitations have been adjusted upwards. The annual additions limitation for defined contribution plans (which includes both employee elective deferrals and employer contributions) has been increased, too, although the elective deferral and catch-up contribution maximums have not changed. Key 2021 amounts that affect tax-qualified retirement plans are listed below, compared to the current amounts. Changes from the current amounts are bolded.

Internal Revenue Code (IRC) or Regulation Section 2021 2020
Defined benefit plan limit:
IRC § 415(b)(1)(A)
$230,000 $230,000
Defined contribution plan limit: IRC § 415(c)(1)(A) $58,000 $57,000
Elective deferral exclusion limitation: IRC § 402(g)(1) $19,500 $19,500
Annual compensation limit:
IRC § 401(a)(17)/404(l)
$290,000 $285,000
Annual Simplified Employee Pension (SEP) compensation limit:
IRC § 408(k)(3)(C)
$290,000 $285,000
Key employee dollar limitation: IRC § 416(i)(1)(A)(i) $185,000 $185,000
Employee Stock Ownership Plan (ESOP) maximum account balance:
IRC § 409(o)(1)(C)
$1,165,000
$230,000
$1,150,000
$230,000
Highly compensated employee limitation: IRC § 414(q)(1)(B) $130,000 $130,000
Catch-up contributions limitation:
IRC § 414(v)(2)(B)(i)
$6,500 $6,500
Savings Incentive Match Plan for Employees (SIMPLE) catch-up contributions limitation:
IRC § 414(v)(2)(B)(ii)
$3,000 $3,000
SEP minimum compensation amount: IRC § 408(k)(2)(C) $650 $600
SIMPLE contribution limit: IRC § 408(p)(2)(E) $13,500 $13,500
Deferral limitation: IRC § 457(e)(15) $19,500 $19,500
Social Security tax wage base $142,800 $137,700
© 2020, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.National Law Review, Volume X, Number 303
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About this Author

Catherine Reesse, Ogletree Deakins Law Firm, Indianapolis, Labor and Employment Law Attorney
Shareholder

Ms. Reese concentrates her practice in employee benefits.  She works with employers to design, establish and administer qualified retirement plans (defined contribution, defined benefit, cash balance), welfare benefit plans, and nonqualified deferred compensation plans. 

She assists clients in complying with statutory and regulatory requirements for reporting and disclosure, testing, and corrections for benefit plans, as well as assisting with IRS, DOL and PBGC filings, audits, and queries.  Ms. Reese also works on benefits issues involved in...

317-916-2536
Associate

Hillary Sizer joined Ogletree Deakins’ Chicago office as an associate in 2019. She assists clients with ERISA compliance matters, focusing on health and welfare plans. She graduated in 2019, with distinction, from Georgetown University Law Center where she earned a Master of Laws in Taxation and an Employee Benefits Certificate. She is a 2018 graduate of the Lewis & Clark Law School in Portland, Oregon. While there, she spent a summer externing for the Oregon Tax Court. She received a BA in Philosophy, cum laude...

312-558-3147
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