November 12, 2021

IRS Announces Benefit Plan Limits for 2022

NCEO founder and senior staff member

The IRS announced COLA (cost of living adjustment) changes for 2022 retirement plan limits (see Notice 2021-61 and the IRS's summary table with links to more information). Changes of special interest for ESOPs include:

  • The contribution limit for employee deferrals into 401(k) plans will be $20,500, up from $19,500 in 2021.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k) plans will remain unchanged at $6,500.
  • The Section 415 defined contribution plan limit will increase from $58,000 to $61,000. This limits the total amount that can be added to employee defined contribution plan retirement accounts both from employee and employer contributions.
  • The limitation used in the definition of “highly compensated employee” will increase from $130,000 to $135,000.
  • The annual limit on compensation that counts as eligible pay will increase from $290,000 to $305,000.

The amount for determining the maximum account balance in an ESOP subject to a five-year distribution period will increase from $1,165,000 to $1,230,000, while the dollar amount used to determine the lengthening of the five-year distribution period will increase from $230,000 to $245,000.

As for IRAs, the limit on annual contributions to an IRA remains unchanged at $6,000, as does the $1,000 catch-up contribution limit for individuals aged 50 and over, which is not subject to COLA increases.