Benefits and Contribution Limuts for Retirement Plans

This article is for business owners who sponsor a qualified retirement plan; we would like to provide you with an overview of the comprehensive regulations regarding limits on contributions and benefits.

For defined benefit plans, the benefit limits cannot exceed the lesser of $275,000 for 2024 ($265,000 for 2023), or the participant’s average compensation for his or her high-three years of service (HTS). The HTS calculation should include the three consecutive calendar years during which the highest aggregate compensation was received.

For defined contribution plans, a plan sponsor may contribute the lesser of $69,000 for 2024 ($66,000 for 2023), or 100 percent of the employee’s compensation. These “annual additions” include employer contributions, employee contributions, and forfeitures. Payments made to restore plan losses from a breach of fiduciary duty under ERISA and other applicable federal and state laws are exempt from the limits on annual additions.

For multiemployer plans, all benefits and annual additions must satisfy the limits on an aggregate basis for all employers. All employers contributing to a multiemployer plan are treated as a single employer when applying the restriction on compensation paid after severance. The final regulations also provide rules regarding cost-of-living adjustments, aggregating plans, the disqualification of plans and trusts, and the definition of the limitation year for compliance purposes.

We can help you review your retirement plan to ensure proper compliance with the rules. Please call our office at your earliest convenience to arrange an appointment.