2020 Annual Benefit Plan Limits

The Internal Revenue Service (IRS) on November 6, 2019 announced the following cost of living inflation adjusted dollar limits applicable to tax-qualified plans and other benefit plans for 2020:

Retirement Plan Limits

  • 401(k) Elective Deferrals - The limit on the maximum amount of elective contributions that a person may make to a Section 401(k) plan, a Section 403(b) tax-sheltered annuity or a Section 457(b) eligible deferred compensation plan is increased from $19,000 to $19,500.
  • Catch-up Contributions - The limit on “catch-up contributions” to a Section 401(k) plan, a Section 403(b) tax-sheltered annuity or a Section 457(b) eligible deferred compensation plan for persons age 50 and older is increased from $6,000 to $6,500.
  • Defined Contribution Limit - The dollar limit on the maximum permissible allocation under a defined contribution plan is increased from $56,000 to $57,000.
  • Defined Benefit Limit - The maximum annual benefit under a defined benefit plan is increased from $225,000 to $230,000. The limit applicable to participants who separated from service before January 1, 2020 is the participant’s compensation limitation, as adjusted through 2019, multiplied by 1.0176.
  • Compensation Limit - The maximum amount of annual compensation that may be taken into account on behalf of any participant under a qualified plan will increase from $280,000 to $285,000.
  • Highly Compensated Employees (HCE) Limit - The dollar amount used to identify “highly compensated employees” is increased from $125,000 to $130,000.
  • Employee Stock Ownership Plan (ESOP) Distribution Timing - The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five year distribution period is increased from $1,130,000 to $1,150,000. The dollar amount used to determine the lengthening of the five year distribution period is increased from $225,000 to $230,000.
  • Key Employee - The dollar amount under § 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $180,000 to $185,000

Other Benefit Limits

  • Flexible Spending Account (FSA) Limit - For the taxable years beginning in 2020, the cafeteria plan dollar limitation under Section 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is increased from $2,700 to $2,750.
  • Health Savings Account (HSA) Limits - For calendar year 2020, the annual limitation on deductions to a health savings account under Section 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is increased from $3,500 to $3,550. For calendar year 2020, the annual limitation on deductions to a health savings account under Section 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is increased from $7,000 to $7,100. The additional catch-up contribution for individuals age 55 and over remains unchanged at $1,000.
  • High Deductible Health Plan - For calendar year 2020, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) do not exceed $6,900 for self-only coverage or $13,800 for family coverage.
  • Social Security Wage Base – For calendar year 2020, the social security wage base will be $137,700, which is an increase of $4,800 from $132,900 in 2019.
  • Qualified Transportation - For calendar year 2020, the monthly limitation for the qualified transportation fringe benefit and for qualified parking increased from $260 to $270. The employer deduction for qualified transportation fringe benefits was repealed beginning in 2018.

Additional information regarding retirement plan dollar limits can be obtained in IRS Notice 2019-59. The health savings account limits and the high deductible health plan limits are in Revenue Procedure 2019-25. The FSA and qualified transportation limits are in Revenue Procedure 2019-44. The social security wage base was announced in SSA, Press Release, 10-10-19. A summary chart is attached.

2020 ANNUAL BENEFIT PLAN LIMITS

 

2019

2020

Defined Contribution

$56,000

$57,000

401(k) Deferrals

$19,000

$19,500

Catch-Up Limit

$6,000

$6,500

Defined Benefit Limit

$225,000

$230,000

Maximum Compensation

$280,000

$285,000

Highly Compensated Employee

$125,000

$130,000

ESOP Distribution Period

$1,130,000

$1,150,000

Additional Increments

$225,000

$230,000

Top Heavy Key Employees

$180,000

$185,000

cafeteria plan health flexible spending arrangements

$2,700

$2,750

HSA Contributions

Self-only coverage

$3,500

$3,550

Family coverage

$7,000

$7,100

HSA catch-up contributions (age 55 or older)

$1,000

$1,000

High Deductible Health Plan

Self-only coverage

 

 

Minimum Deductible

$1,350

$1,400

Maximum Out-of-Pocket

$6,750

$6,900

Family coverage

 

 

Minimum Deductible

$2,700

$2,800

Maximum Out-of-Pocket

$13,500

$13,800

Social Security Wage Base

$132,900

$137,700

Qualified Transportation or Parking

$260

$270


Contact Information

If you have any questions regarding this alert, please contact the Akin Gump lawyer with whom you usually work or

Robin M. Schachter
Email
Los Angeles
+1 310.728.3363

Bruce E. Simonetti
Email
New York
+1 212.872.8023

Rolf Zaiss
Email
New York
+1 212.872.1050

Aimee M. Adler
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New York
+1 212.872.8060

Michael Gerald
Email
Los Angeles
+1 213.254.1206