Seyfarth Synopsis: The IRS just announced the 2022 annual limits that apply to tax-qualified plans. After minimal changes last year, there are several updates to the limits that employers should be aware of. Employers maintaining tax-qualified retirement plans will need to make sure their plans’ administrative procedures are adjusted accordingly.
In Notice 2021-61, the IRS announced the various limits that apply to tax-qualified retirement plans in 2022. The “regular” contribution limit for employees who participate in 401(k), 403(b) and most 457 plans will increase by $1,000 to $20,500 in 2022, up from $19,500 in 2021. The “catch-up” contribution limit will remain the same at $6,500. Thus, if you are or will be age 50 by the end of 2022, you may be eligible to contribute up to $27,000 to your 401(k) plan in 2022. These same limitations apply if you work for a governmental or tax-exempt employer and participate in a 403(b) plan.
The maximum amount that may be contributed to a defined contribution plan (the “415 Limit”) also is being increased for 2022 from $58,000 to $61,000. Additionally, the maximum annual compensation that may be taken into account under a plan is increasing from $290,000 to $305,000 for 2022. For individuals investing in individual retirement accounts (IRAs), the 2022 annual contribution limit remains unchanged at $6,000, or $7,000 for those 50 or older.
The Notice also includes several other notable retirement-related limitation changes for 2022, including the dollar limitation on the annual benefit under a defined benefit plan, which increases from $230,000 to $245,000; the dollar limit used to determine a highly compensated employee, which increases from $130,000 to $135,000; and the dollar limit used when defining a key employee in a top-heavy plan, which increases from $185,000 to $200,000.
Individuals should check their plan contribution elections and consult with their personal tax advisor before the end of 2021 to make sure that they take full advantage of the contribution limits in 2022. Given the numerous changes, employers who sponsor a tax-qualified retirement plan should consider any necessary adjustments to plan administrative procedures and update their participant notices to ensure proper administration of the plan in 2022.
Employers who sponsor defined benefit pension plans (e.g., cash balance plans) should review the new limits in the IRS Notice and make any necessary adjustments to plan administrative/operational procedures.