On November 4, 2021, via Notice 2021-61, the IRS announced the effect of cost-of-living adjustments on certain 2022 dollar limits for various retirement plans (e.g., 401(k) plans and 403(b) plans). Certain limits will increase for 2022 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:
Deferrals: The elective deferral contribution limit will increase from
$19,500 to $20,500 (not including catch-up contributions). SeeCode section 402(g).
Contributions: This limit for participants who will be at least 50 years of
age at any point during 2022 will remain at $6,500. SeeCode section 414(v).
The annual limit on compensation that can be taken into account for purposes of
contributions and deductions will increase from $290,000 to $305,000. SeeInternal Revenue Code (“Code”) section
401(a)(17), which relates to contributions, and Code section 404(l), relating
Compensated Employees: The compensation threshold for determining who is a highly
compensated employee will increase from $130,000 to $135,000. (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
Additions: The limit on the combination of participant contributions,
employer contributions, and forfeiture allocations credited to a participant’s
account will increase from $58,000 to $61,000. SeeCode section 415(c).
Employees: The compensation amount for determining which officers are
key employees (which is important for top-heavy plan purposes) will increase
from $185,000 to $200,000. SeeCode section
In addition, the Social Security Administration has
announced that the Social Security taxable wage base will increase from $142,800 to $147,000 for 2022.
Individuals who administer retirement plans (e.g.,
Human Resources, Payroll, service providers) should start planning to implement
the 2022 limits. This may involve steps such as drafting communications to
employees, revising plan administration forms and manuals, and revising payroll