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Employee Benefits and Executive Compensation Alert

The Internal Revenue Service (IRS) has announced 2019 dollar limitations on benefits, contributions, and compensation. The Internal Revenue Code (Code) affords tax benefits for employers that sponsor qualified plans and for employees who participate in such plans. In exchange for these tax benefits, the Code places limitations on the contribution and benefit amounts. The IRS makes annual cost-of-living adjustments to these limits.

Last year, a low rate of inflation meant that several of the limits did not rise. However, the rate of inflation increased in 2018, pushing almost all of the 2019 limits upward.

The key limits for 2019 (and the limits that applied in 2018) are listed in the table below:

Code Section Limit 2019 2018
§402(g)(1)(B) 401(k)/403(b) Elective Deferrals $19,000 $18,500
§457(e)(15)(A) 457(b) Contributions $19,000 $18,500
§414(v)(2)(B)(i) Age 50+ "Catch-Up" Contributions to 401(k), 403(b), and governmental 457(b) plans $6,000 $6,000
§415(c)(1)(A) DC Annual Additions $56,000 $55,000
§415(b)(1)(A) DB Annual Benefits $225,000 $220,000
§414(q)(1)(B)(i) Highly Compensated Employees $125,000 $120,000
§401(a)(17)(A) Annual Compensation Taken Into Account $280,000 $275,000
§416(i)(1)(A)(i) Key Employee/Officer $180,000 $175,000
       
§223(b)(2) HSA Annual Contribution Levels    
  Individual $3,500 $3,450
  Family $7,000 $6,900
Social Security Wage Base   $132,900 $128,400


The most important changes in these limits are as follows:
  • For most employees, the most significant change is the increase in the maximum limits for pre-tax and Roth contributions to 401(k), 403(b), and 457(b) plans. These raise the amount that individuals can contribute from $18,500 to $19,000 for employees under 50. The catch-up permits employees age 50 and older to contribute up to an extra $6,000, or a total of $25,000 in 2019, to 401(k), 403(b), and governmental 457(b) plans, but not to 457(b) plans of nongovernmental employers. Further catch-ups may be available to participants in certain 403(b) plans.
  • The total annual limit on employer and employee contributions ("annual additions") will rise from $55,000 to $56,000. ("Catch-up contributions" described in the preceding paragraph do not apply in calculating this limit, so the annual limit for those age 50 and older can be as high as $62,000.) This will benefit employees in defined contribution plans that provide for after-tax employee contributions, or that include generous employer-provided benefits.
  • The limit on annual benefits from defined benefit plans, when taken as a straight life annuity beginning between ages 62 and 65, will increase from $220,000 to $225,000.
  • The annual limit on compensation that can be taken into account in calculating contributions and benefits and in performing certain nondiscrimination testing will increase from $275,000 to $280,000 (and will be even higher for certain governmental plans).
  • The threshold for determining who is a highly compensated employee will rise from $120,000 to $125,000.
  • The threshold for determining whether an officer is a key employee for purposes of the top-heavy rules will rise from $175,000 to $180,000.
  • The annual amount that individuals can contribute to health savings accounts, if they are covered by high deductible health plans, will increase from $3,450 to $3,500 in the case of individual coverage, and from $6,900 to $7,000 in the case of family coverage.
  • And independently, the Social Security Administration announced that the maximum amount of wages subject to Social Security taxes for 2018 will increase from $128,400 to $132,900.

Please contact any of the attorneys in our Employee Benefits and Executive Compensation Group if you have any questions regarding this Alert.