Willkie Farr & Gallagher LLP
United States: Most key dollar limits for employee benefits and executive compensation set to change for 2022
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On November 4, 2021, the Internal Revenue Service announced its 2022 cost of living adjustments to the various dollar limits for employee benefit plans. While these limits directly affect tax-eligible pension plans, certain dollar limits and thresholds imposed outside the context of eligible pension plans, such as non-eligible deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), is also affected. Although some limits will remain the same for 2022, many of the limits affecting employer-provided plans will increase.
Attached to this alert is a table comparing the most relevant 2022 dollar limits and thresholds for pension and deferred compensation plans to those of 2021 and 2020. The most notable are as follows:
- The optional deferral (contribution) limit for employees participating in 401 (k) plans (other than SIMPLE plans) is increased from $ 19,500 to $ 20,500. The catch-up contribution limit for people aged 50 and over remains unchanged at $ 6,500.
- The annual benefit limit under a defined benefit plan is increased from $ 230,000 to $ 245,000. This limit may also affect ineligible deferred compensation plans that provide defined benefits in addition to an eligible defined benefit plan.
- The annual allocation limit for defined contribution plans is increased from $ 58,000 to $ 61,000.
- The maximum amount of annual compensation that may be taken into account under an eligible pension plan is reduced from $ 290,000 to $ 305,000. This limit may also affect unqualified deferred compensation plans that provide benefits in excess of this annual dollar limit. In addition, under the above limit, the amount of severance pay that may be exempt from section 409A of the Code under a “security” severance agreement (p. To “two-time exception” 1) increased from $ 580,000 to $ 610,000.
- The dollar limit used in the definition of “highly paid employee” is increased from $ 130,000 to $ 135,000.
- The dollar limit on the definition of “key employee” in a very heavy plan is increased from $ 185,000 to $ 200,000.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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