IRS Raises Several Annual Retirement Plan Limits for 2019

For 2019, the Internal Revenue Service (IRS) is raising most of the annual threshold and benefit levels that apply to retirement plans, the IRS announced on November 1.

Employers and retirement plan administrators can apply the new rates as they prepare their plans for next year and conduct nondiscrimination testing. Notice 2018-83 outlined the latest changes to cost-of-living adjustments for various statutory dollar amounts relevant to employee benefit plans.

The limits affect maximum contribution levels (see ¶241 in The 401(k) Handbook for more information). Decisions about raising thresholds critical for retirement plan administration for each tax year are based on changes in the Consumer Price Index (CPI) that meet the statutory thresholds for annual adjustment by the IRS. Most of the limits were increased for 2018.

The elective deferral, or contribution, limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan (TSP) for 2019 is again increased by $500, to $19,000.

For 2019, the catch-up contribution (see ¶244 of the Handbook) limit for employees age 50 and older who participate in 401(k), 403(b), most 457 plans, and the federal government’s TSP stays at $6,000.

The 415 limitation for defined contribution plans under Section 415(c)(1)(A) is also raised for next year, to $56,000 from $55,000.

The limitation on an annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased to $225,000 from $220,000, effective January 1, 2019. The limitation for a participant separated from employment before that date with a defined benefit plan is computed by multiplying the participant’s compensation limitation, as adjusted for 2018, by 1.0264.

In addition, the annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is rising to $280,000 from $275,000 in 2018.

Adhering to these thresholds in administering benefit plans is important in order for a plan to stay in compliance, not threaten its qualified status, and to make sure that additional taxes are not imposed on employees.

For calendar year 2019, the Social Security taxable wage base increases to $132,900 from $128,400.

Nondiscrimination Testing

These are the 2019 rates relevant to nondiscrimination testing:

• The threshold for defining a “control employee” for fringe benefit valuation purposes is unchanged at $110,000. The compensation amount under Section 1.61-21(f)(5)(iii) goes up to $225,000 from $220,000.
• The bar for “highly compensated employee” (see ¶312 in the Handbook) under Section 414(q)(1)(B) is lifted to $125,00 from $120,000.
• The dollar limit that defines a “key employee” in a top-heavy plan rises to $180,000 from $175,000.

Retirement Plans

• The limitation on deferrals under Section 457(e)(15) relevant to deferred compensation plans of state and local governments and tax-exempt organizations is increased to $19,000 from $18,500.
• The 2017 annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is lifted to $280,000 from $275,000. The annual compensation limit under Section 401(a)(17) for participants in some governmental plans that allow cost-of-living adjustments also will rise, to $415,000 from $405,000 in 2018.