In this legal update, our employee benefits team highlights the recently issued 2021 calendar year limits for qualified retirement plans, other retirement arrangements, fringe benefits, and health and welfare plans.
2021 Adjusted Dollar Limits for Retirement Plans
The Internal Revenue Service (IRS) announced cost-of-living adjustments for benefits and contributions under qualified retirement plans and other retirement arrangements for the 2021 calendar tax year. Several limits remain unchanged, including the elective deferral limit, the catch-up contribution limit, and the defined benefit plan maximum annual benefit. Other limits have increased, including the defined contribution plan annual addition limit ($58,000) and the annual compensation limit ($290,000). Key limits are provided below, and a complete list of adjusted limits can be found in IRS Notice 2020-79.
| |
2021 |
2020 |
2019 |
| Defined Benefit Plan Maximum Annual Benefit |
$230,000 |
$230,000 |
$225,000 |
| Annual Compensation Limit |
$290,000 |
$285,000 |
$280,000 |
| Defined Contribution Plan Elective Deferral Limit (applicable to 401(k), 403(b), and most 457(b) plans) |
$19,500 |
$19,500 |
$19,000 |
| Defined Contribution Plan Catch-up Contribution Limit for employees age 50 and over |
$6,500 |
$6,500 |
$6,000 |
| Defined Contribution Plan Combined Annual Addition Limit |
$58,000 |
$57,000 |
$56,000 |
| Dollar Limit Used in “Highly Compensated Employee” Definition |
$130,000 |
$130,000 |
$125,000 |
| Dollar Limit Used in Top Heavy “Key Employee” Definition |
$185,000 |
$185,000 |
$180,000 |
| ESOP Maximum Account Balance Subject to Five-Year Distribution Rule |
$1,165,000 |
$1,150,000 |
$1,130,000 |
| ESOP Dollar Amount Used to Determine Lengthening of Five-Year Distribution Period |
$230,000 |
$230,000 |
$225,000 |
| IRA Contribution Limit |
$6,000 |
$6,000 |
$6,000 |
| IRA Catch-up Contribution Limit |
$1,000 |
$1,000 |
$1,000 |
| Wage Base for Social Security Tax |
$142,800* |
$137,700 |
$132,900 |
*Announced by the Social Security Administration in October 2020
The change in dollar limits may impact participant communications, such as enrollment materials and deferral election forms, in addition to administrative system programming. If you have any questions about the 2021 limits, please contact a member of the Stoel Rives Employee Benefits team.
2021 Adjusted Dollar Limits for Fringe Benefits and Welfare Plans
The Internal Revenue Service also announced cost-of-living adjustments for certain limits applicable to fringe benefit and health and welfare arrangements, most of which remain unchanged from 2020. Key limits are provided below.
| |
2021 |
2020 |
2019 |
| Maximum Health Flexible Spending Account Salary Reduction |
$2,750 |
$2,750 |
$2,700 |
| Maximum Health Flexible Spending Account Carryover |
$550 |
$550 |
$500 |
| Transportation Fringe Benefit: Parking (per month) |
$270 |
$270 |
$265 |
| Transportation Fringe Benefit: Transit Passes & Vanpool (per month) |
$270 |
$270 |
$265 |
| Maximum Exclusion for Employer-Provided Adoption Assistance |
$14,400 |
$14,300 |
$14,080 |
| Group-Term Life Insurance: Key Employee Dollar Threshold |
(Officer) |
| (More than 1% Owner) |
|
|
|
|
| Excepted-Benefit HRA Maximum Newly Available Benefit Amount |
$1,800 |
$1,800 |
N/A |
| Health Savings Account Maximum Contribution Limit* |
(Self-Only) |
| (Family) |
|
|
|
|
| Health Savings Account Catch-up Contribution Limit* |
$1,000 |
$1,000 |
$1,000 |
* Announced by the IRS in May 2020
The change in dollar limits impacts participant communications, such as open enrollment materials and spending account election forms, in addition to administrative system programming. If you have any questions about the 2021 limits, please contact a member of the Stoel Rives Employee Benefits team.
