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October 27, 2020

By: Lisa A. Durham and Bryan J. Gross

On October 26, 2020, the Internal Revenue Service issued Notice 2020-79 to announce the cost-of-living adjustments applicable to pension and retirement plan dollar limitations for the 2021 tax year – most of which will remain unchanged from 2020. Additionally, the Social Security Administration has determined that the 2021 contribution and benefit base will be $142,800, up from $137,700 in 2020. No change in a limitation means that the increase in the cost-of-living index was not sufficient to trigger the applicable statutory cost-of-living adjustment ("COLA").

The following table summarizes many of the retirement plan limitations for the 2020 and 2021 tax years:

 

Type of Limitation – Internal Revenue Code Section

Amount of Limitation for 2021

Amount of Limitation for 2020

Compensation Limit – 401(a)(17), 404(I), 408(k)(3)(C) [SEP], and 408(k)(6)(D)(ii)

$290,000

$285,000

Elective Deferral Limit for 401(k)/403(b)/457(b) Plans, SARSEPs – 402(g)(1), 457(e)(15), 408(k)(6)(A)(iv)

$19,500

$19,500

Catch-up Contribution Limit for 401(k)/403(b)/Governmental 457(b) Plans, SARSEPs – 414(v)(2)(B)(i)

$6,500

$6,500

Highly Compensated Employee Compensation Threshold – 414(q)(1)(B)(i)

$130,000

$130,000

Defined Benefit Plan Annual Benefit Limitation – 415(b)(1)(A)

$230,000

$230,000

Defined Contribution Plan Annual Addition Limitation - 415(c)(1)(A)

$58,000

$57,000

Key Employee Compensation Threshold for Officers – 416(i)(1)(A)(i)

$185,000

$185,000

SEP Eligibility Compensation Threshold – 408(k)(2)(C)

 

$650

$600

SIMPLE 401(k) Plan and SIMPLE IRA Elective Contribution Limit – 401(k)(11)(B)(i)(I), 408(p)(2)(E)

$13,500

$13,500

SIMPLE 401(k) Plan and SIMPLE IRA Catch-up Contribution Limit – 414(v)(2)(B)(ii)

$3,000

$3,000

ESOP Maximum Account Balance Subject to 5-year Distribution Period – 409(o)(1)(C)

$1,165,000

$1,150,000

ESOP Incremental Amount for Lengthening 5-year Distribution Period - 409(o)(1)(C)

$230,000

$230,000

Compensation Limit for Grandfathered Participants in Certain Governmental Plans – 401(a)(17)

$430,000

$425,000

 

For further information regarding the 2021 retirement plan limitations or to discuss any other retirement or welfare plan matters, please contact any member of our Employee Benefits and Executive Compensation Practice Group.