2020 Retirement Plan Limits Announced:

On November 6, 2019, via Notice 2019-59, the IRS announced the effect of cost-of-living adjustments on certain 2020 dollar limits for various retirement plans (e.g., 401(k) plans). Many of the limits will increase for 2020 because the increase in the cost-of-living index met statutory thresholds that trigger their adjustment. Here are the most notable figures for the majority of defined contribution plans:

• Compensation: The annual limit on compensation that can be taken into account for purposes of contributions and deductions will increase from $280,000 to $285,000. SeeInternal Revenue Code (“Code”) Section 401(a)(17), which relates to contributions, and Code Section 404(l), relating to deductions.
• Elective Deferrals: The elective deferral contribution limit will increase from $19,000 to $19,500 (not including catch-up contributions). SeeCode Section 402(g).
• Catch-Up Contributions: This limit for participants who will be at least 50 years of age at any point during 2020 will increase from $6,000 to $6,500. SeeCode Section 414(v).
• Highly Compensated Employees: The compensation threshold for determining who is a highly compensated employee will increase from $125,000 to $130,000. (Note that a participant’s ownership of the plan sponsor and/or a related organization, as well as certain interests owned by a participant’s family, may also affect this determination.) SeeCode Section 414(q).
• Annual Additions: The limit on the combination of participant contributions, employer contributions, and forfeiture allocations credited to a participant’s account will increase from $56,000 to $57,000. SeeCode Section 415(c).
• Key Employees: The compensation amount for determining which officers are key employees (which is important for top-heavy plan purposes) will increase from $180,000 to $185,000. SeeCode Section 416(i).

For more information, here is a link to Notice 2019-59: https://www.irs.gov/pub/irs-drop/n-19-59.pdf

In addition, the Social Security Administration has announced that the Social Security taxable wage base will increase from $132,900 to $137,700 for 2020. That announcement can be accessed here:  https://www.ssa.gov/news/press/releases/2019/#10-2019-1

Individuals who administer retirement plans (e.g., Human Resources, Payroll, service providers) should start planning to implement the 2020 limits. This may involve steps such as drafting communications to employees, revising plan administration forms and manuals, and revising payroll systems.