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IRS Announces 2020 Employee Benefit Plan Limits

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.


*      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.

© 2019 McDermott Will & Emery

TRENDING LEGAL ANALYSIS


About this Author

Jeffrey M. Holdvogt, Employee Benefits, Executive Compensation, McDermott Will Emery, Law Firm
Partner

Jeffrey M. Holdvogt is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office. 

Jeffrey focuses on matters related to employee benefits and executive compensation, including pension, profit sharing, 401(k), ESOPs, welfare and nonqualified deferred compensation plans.   Prior to joining McDermott, Jeffrey served as a law clerk for the Honorable Paul H. Anderson and James H. Gilbert of the Minnesota Supreme Court.

While in law school, he was an...

312-984-7564
Jacob Mattinson Employee Benefits Attorney
Associate

Jacob M. Mattinson focuses his practice on employee benefits and matters related to 401(k), 403(b), pension, executive compensation, health care reform, and cafeteria and welfare plans.

Jacob assists clients in drafting employee benefit plan documents and amendments. He represents clients in matters before the Internal Revenue Service (IRS), US Department of Labor (DOL) and Pension Benefit Guaranty Corporation with respect to plan qualification issues. He also counsels privately and publicly held corporations and tax-exempt entities on a variety of benefits and Employee Retirement Income Security Act (ERISA) issues, including ERISA fiduciary issues, compliance with the Affordable Care Act and the Health Insurance Portability and Accountability Act (HIPAA), ERISA implications in corporate transactions, ERISA administrative claims and appeals, and executive compensation matters.

While in law school, Jacob was editor in chief of the Penn State Law Review. In addition, Jacob served as a legal intern for the Honorable Judge Renee Cohn Jubelirer of the Commonwealth Court of Pennsylvania. Jacob is the Chairperson of the Young Professionals Board of Equip for Equality. Internally, Jacob serves on the Firm’s Pro Bono and Community Service Committee.

312-984-3263
Brian J. Tiemann, Labor Attorney, McDermott Law Firm
Partner

Brian J. Tiemann is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.   Brian focuses his practice on a variety of employee benefits matters related to pension plans, 401(k) plans, employee stock ownership plans (ESOPs), cafeteria and welfare plans, executive compensation and the implementation of benefit programs for domestic partners of employees.  He is a member of the Firm’s ESOP Affinity Group and has worked with clients to structure and maintain the qualified status of their ESOPs with the Internal Revenue...

312-984-3268