IRS Announces 2019 Retirement Plan Limit Adjustments

Practical Law Legal Update w-017-3696 (Approx. 7 pages)

IRS Announces 2019 Retirement Plan Limit Adjustments

by Practical Law Employee Benefits & Executive Compensation

Retirement Plan Limits (Notice 2018-83)

Under Notice 2018-83, for the 2019 tax year:

The elective deferral limit under Section 402(g)(1) of the Internal Revenue Code (Code) (26 U.S.C. § 402(g)(1)) will increase from $18,500 to $19,000 for employees who participate in:
- Code Section 401(k) plans (see Practice Note, Contributions to a Defined Contribution Plan: Limits on Contributions);
- Code Section 403(b) plans (see Practice Note, Code Section 403(b) Plans: Overview); and
- most Code Section 457 plans (see Practice Note, Executive Compensation for Tax-Exempt Organizations).
The catch-up contribution limit for those age 50 and over under Code Section 414(v)(2)(B)(i) (26 U.S.C. § 414(v)(2)(B)(i)) will remain unchanged at $6,000. The catch-up contribution limit for those age 50 and over under Code Section 414(v)(2)(B)(ii) (26 U.S.C. § 414(v)(2)(B)(ii)) will remain unchanged at $3,000 (see Practice Note, Contributions to a Defined Contribution Plan: Limits on Contributions).
The limitation on the annual benefit for a defined benefit (pension) plan under Code Section 415(b)(1)(A) (26 U.S.C. § 415(b)(1)(A)) will increase from $220,000 to $225,000.
The limitation on annual additions to a participant's defined contribution plan under Code Section 415(c)(1)(A) (26 U.S.C. § 415(c)(1)(A)) will increase from $55,000 to $56,000 (see Practice Note, Contributions to a Defined Contribution Plan: Limits on Contributions).
The annual compensation limit under Code Section 401(a)(17) (26 U.S.C. § 401(a)(17)) will increase from $275,000 to $280,000.
The limitation used in the definition of highly compensated employees (HCEs) under Code Section 414(q)(1)(B) (26 U.S.C. § 414(q)(1)(B)) will increase from $120,000 to $125,000 (see Standard Clause, Plan Language, Definition of Highly Compensated Employee).
The limitation used in the definition of a key employee in a top-heavy plan under Code Section 416(i)(1)(A)(i) (26 U.S.C. § 416(i)(1)(A)(i)) will increase from $175,000 to $180,000.
The dollar amount under Code Section 409(o)(1)(c)(ii) (26 U.S.C. § 409(o)(1)(c)(ii)) for determining the maximum account balance in an employee stock ownership plan (ESOP) subject to a five-year distribution period will increase from $1,105,000 to $1,130,000. The dollar amount used to determine the lengthening of the five-year distribution period will increase from $220,000 to $225,000. The limit under Code Section 664(g)(7) (26 U.S.C. § 664(g)(7)) concerning the qualified gratuitous transfer of qualified employer securities to an ESOP will remain unchanged at $50,000 (see Practice Notes, Employee Stock Ownership Plans (ESOPs) and Employee Stock Ownership Plans: Winding Down an ESOP).
The compensation amount under Code Section 408(k)(2)(C) (26 U.S.C. § 408(k)(2)(C)) regarding simplified employee pensions (SEPs) will remain unchanged at $600 (see Practice Note, Simplified Employee Pensions (SEPs) and Salary Reduction Simplified Employee Pensions (SARSEPs)).
The limitation under Code Section 408(p)(2)(E) (26 U.S.C. § 408(p)(2)(E)) regarding SIMPLE retirement accounts will increase from $12,500 to $13,000 (see Practice Note, Savings Incentive Match Plan for Employees Individual Retirement Accounts (SIMPLE IRAs): Employee Contribution to a SIMPLE IRA).

Notice 2018-83 provides that the threshold used to determine whether a multiemployer plan is a systematically important plan under Code Section 432(e)(9)(H)(v)(III)(aa) (26 U.S.C. § 432(e)(9)(H)(v)(III)(aa)) will increase from $1,087,000,000 to $1,097,000,000 (see Practice Note, Multiemployer Pension Plans).

Notice 2018-83 also discusses the increases in the adjusted gross income limitation under Code Section 25B(b)(1)(A) (26 U.S.C. § 25B(b)(1)(A)) for determining the retirement savings contribution credit.

For more information on dollar limits for retirement plans, see Practice Note, Requirements for Qualified Retirement Plans.

PBGC Premium Rates and Guarantee Limits

In October 2018, the PBGC announced updated PBGC premium rates for plan years beginning in 2019, which reflect the increases and indexing required by ERISA Section 4006 (29 U.S.C. § 1306), as amended by the Bipartisan Budget Act of 2015 (see Legal Update, Bipartisan Budget Act of 2015 Includes Pension Funding Provisions and Repeals Automatic Enrollment Under the ACA). Specifically:

The per-participant flat premium rate will increase from $74 to $80 for single-employer plans (as provided by the Bipartisan Budget Act of 2015) and will increase from $28 to $29 for multiemployer plans.
The variable-rate premium (VRP) for single-employer plans will increase from $38 to $43 per $1,000 of unfunded vested benefits (UVBs).
The VRP cap will increase from $523 to $541, multiplied by the number of participants. The PBGC indicated that plans sponsored by small employers (small employers generally have fewer than 25 employees) may be subject to a lower cap. Multiemployer plans do not pay a VRP.

After 2019, all PBGC premium rates will be subject to indexing based on increases in the National Average Wage Index (NAWI). There are no scheduled premium increases other than indexing after 2019.

In October 2018, the PBGC also announced guarantee limits for single-employer defined benefit plans that fail in 2019. The guarantee limits for 2019 are approximately 3.5% higher than the limits for 2018. A full list of PBGC maximum monthly guarantees for 2019 are included on the PBGC Maximum Monthly Guarantee Tables page. If a defined benefit plan fails in 2019 due to a plan sponsor's bankruptcy that began in an earlier year, the limits in effect for that earlier year apply.

Social Security Wage Base

On October 11, 2018, the Social Security Administration (SSA) announced that the Social Security taxable wage base for 2019 will increase to $132,900, from $128,400 in 2018.

IRS Announces 2019 Retirement Plan Limit Adjustments | Practical Law