Pension law imposes limits on compensation that may be considered, benefits that may be funded and amounts that may be contributed. The limitations for the 2019 through 2021 calendar years are summarized below:
SS Wage Base
Compensation: The limit is based on the first day of the plan year.
SS Wage Base: The Social Security Taxable Wage Base is used to calculate the Social Security payroll tax. It can be an important element in the design of a qualified plan. This amount is based on the first day of the plan year.
HCE Determination: Highly Compensated Employees (HCEs) in a plan year are participants who own more than 5% of the company in the current or prior plan year or who were paid Compensation in excess of the limit for the prior plan year.
Defined Benefit: The maximum annual benefit which may be funded in a defined benefit plan at retirement ages between 62 and 65. This limit is reduced for less than ten years of participation and adjusted for commencement before or after ages 62 and 65, respectively.
Salary Deferrals: The maximum amount that may be deferred by a participant to all 401(k) plans in a calendar year.
Catch-Ups: Participants who are age 50 or older by the end of a calendar year may be eligible to make additional Salary Deferrals up to this limit. This amount applies to a participant on a calendar year basis.
Annual Additions: The maximum annual addition in a plan year for a participant is the lesser of 100% of Compensation and this amount. This limit is based on the last day of the plan year. It includes all employer contributions, Salary Deferrals except Catch-Up contributions, employee post-tax contributions and forfeitures.