New Qualified Plan Limits and Social Security Adjustments for 2020 Announced

By David J. Kupstas, FSA, EA, MSPA

David J. Kupstas, FSA, EA, MSPA

David J. Kupstas, FSA, EA, MSPA Chief Actuary

Retirees receiving Social Security will see a small benefit increase in 2020.  Savers in qualified retirement plans (but not IRAs) will have the ability to put a bit more money away in 2020.

Those are the main takeaways from recent announcements by the IRS, Pension Benefit Guaranty Corporation (PBGC), and Social Security Administration (SSA) regarding the annual increases (or not) in benefits, limits, premium rates, and more.

Most IRS Limits Will Again Increase by One Step

 According to Notice 2019-59, these limits will rise in 2020:

  • The elective deferral limit under §402(g)(1) for 401(k) and certain other plans is increased from $19,000 to $19,500.
  • The annual addition limitation for defined contribution plans under §415(c)(1)(A) is increased from $56,000 to $57,000.
  • The dollar limitation under §414(v)(2)(B)(i) for catch-up contributions to 401(k) plans for individuals aged 50 or over is increased from $6,000 to $6,500. Given the 415(c) increase to $57,000, this means there is effectively an annual addition limit of $63,500 for some participants 50 and older.
  • The annual compensation limit under §§401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $280,000 to $285,000.
  • The limitation used in the definition of “highly compensated employee” under §414(q)(1)(B) is increased from $125,000 to $130,000. Note that this will affect the determination of Highly Compensated Employees for the 2021 plan year since HCE status is based on previous year’s pay.  HCE status for 2020 will be based on the 2019 compensation threshold of $125,000.
  • The limitation on the annual benefit under a defined benefit plan under §415(b)(1)(A) is increased from $225,000 to $230,000.
  • The deferral limitation under §408(p)(2)(E) for SIMPLE plans is increased from $13,000 to $13,500.
  • The dollar limitation 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.

These limits will remain at their 2019 levels:

  • The dollar limitation under §414(v)(2)(B)(ii) for catch-up contributions to SIMPLE IRA or 401(k) plans for individuals aged 50 or over remains unchanged at $3,000.
  • The deductible amount under §219(b)(5)(A) for Individual Retirement Account contributions remains unchanged at $6,000.

PBGC Premiums and Caps to Rise Again

For plan years beginning in 2020:

  • The per-participant flat premium rate is $83 for single-employer plans (up from a 2019 rate of $80).
  • The variable-rate premium for single-employer plans is $45 per $1,000 of unfunded vested benefits, up from a 2019 rate of $43.
  • The variable-rate premium is capped at $561 times the number of participants (up from a 2019 cap of $541). Plans sponsored by small employers (generally fewer than 25 employees) may be subject to a lower cap.

After a series of sharp increases in recent years resulting from law changes, the rates and cap will be indexed for wage growth in 2020 and beyond.

Social Security Checks Set to Go Up By 1.6%

Monthly Social Security and Supplemental Security Income benefits for nearly 69 million Americans will increase 1.6 percent in 2020, according to a Social Security Administration press release from last month.

The maximum amount of earnings subject to the Social Security tax (the “taxable wage base”) will increase to $137,700 from $132,900.

— Topics: 401(k), Retirement