Compliance Update – November 2023
The Internal Revenue Service publishes, on a yearly basis, certain Pension Plan Limitations for the coming year. We have outlined the most commonly applied limits for your reference.
Maximum Defined Contribution Annual Additions Limit:
In a Defined Contribution Plan, which includes Profit Sharing and 401(k) Plans, the Internal Revenue Code sets limits on contributions made to a participant’s account. The Code uses the term “annual additions” which represents both employee and employer contributions as well as reallocated forfeitures. Effective for plan years ending after January 1, 2024, the annual dollar limit for defined contribution plans is the lesser of 100% of compensation or $69,000.
Maximum Defined Benefit Limit:
Ultimate benefit that may be funded for at retirement. Effective for plan years ending after January 1, 2024, the annual dollar benefit under a defined benefit pension plan is the lesser of 100% of compensation or $275,000.
Annual Compensation Limit:
Effective for plan year beginning January 1, 2024 or later, the annual compensation limit is $345,000. Compensation in excess of the limit will be disregarded for all computation purposes.
Key Employee defined for Top Heavy determination:
1. A 5% owner, without regard to compensation, or
2. 1% owner whose annual compensation is over $150,000, or 3. Officers with annual compensation in excess of $220,000.
Highly Compensated Employee (HCE) defined for 401(k) / 401(m) testing:
1. A 5% owner of an Employer or an Affiliate in the current or the immediately preceding plan year, or
2. Any employee earning more than $150,000 in 2023 ($155,000 for 2024)
3. Constructive ownership rules apply attributing ownership to spouses and lineal ascendants and descendants (parents, grandparents, children and grandchildren) of the owner in both of the above employee definitions.
Maximum Limit on 401(k) Elective Deferral Contributions:
A participant’s elective deferral contributions under all 401(k) plans in which he or she participates during any taxable year is $23,000 for the 2024 Calendar Year. 401(k) plans may permit participants who have reached age 50 by the end of the plan year to make annual catch-up contributions once the annual dollar limit or a plan-imposed limit on elective deferrals has been reached. For calendar year 2024, the limit is $7,500.
Maximum Limit on SIMPLE 401(k) or SIMPLE IRA Deferral Contributions:
A participant’s elective deferral contributions under a SIMPLE 401(k) plan or SIMPLE IRA account in which he or she participates during the year is $16,000 for the 2024 Calendar Year. Participants who have reached age 50 by the end of the plan year may make annual catch-up contributions once the annual dollar limit or a plan-imposed limit on
elective deferrals has been reached. For calendar year 2024, the limit is $3,500.
Taxable Wage Base:
The Taxable Wage Base for 2024 is $168,600.
Contribution Restrictions 2023 2022 2021 2020 2019
Defined Contribution Maximum Contribution $66,000 $61,000 $58,000 $57,000 $56,000
Defined Benefit Maximum Benefit at Retirement $265,000 $245,000 $230,000 $230,000 $225,000
Annual Compensation Limit $330,000 $305,000 $290,000 $285,000 $280,000
401(k), 403(b) and 457 Plan Maximum Deferrals $22,500 $20,500 $19,500 $19,500 $19,000
401(k), 403(b) and 457 Plan Catch-up Contributions (Age 50 or older) $7,500 $6,500 $6,500 $6,500 $6,000
SIMPLE IRA Maximum Elective Deferrals $15,500 $14,000 $13,500 $13,500 $13,000
SIMPLE IRA Catch-up Contributions $3,500 $3,000 $3,000 $3,000 $3,000
IRA Maximum Contribution $6,500 $6,000 $6,000 $6,000 $6,000
IRA Catch-up Contribution $1,000 $1,000 $1,000 $1,000 $1,000
Highly Compensated Employee – prior year compensation or a more than 5% Owner $150,000 $135,000 $130,000 $130,000 $125,000
Social Security Wage Base $160,200 $147,000 $142,800 $137,700 $132,900
| Recurring Deadlines: | |
|---|---|
| Activity | Due Date |
| Remittance of Employee Deferrals and Loan Repayments | Small Plans: within 7 business days from payroll date; otherwise, as soon as administratively feasible |
| Employer Contributions must be postmarked for deposit or actually deposited by | The due date of the corporate or partnership tax return, including extensions |
| Corrective distributions for failed ADP/ACP test (to avoid 10% Employer excise tax) | Distributions must be made no later than 2 ? months after the plan year end |
| Corrective distributions for failed ADP/ACP test for plans where participants are automatically enrolled and certain other requirements are satisfied (to avoid 10% Employer excise tax) | Distributions must be made no later than 6 months after the plan year end |
| Corrective distributions of excess deferrals | April 15th |
| Annual IRS Form 5500 filing | Last day of the 7th month after the plan year end or may be extended for an additional 2 ? months |
| Distribution of Summary Annual Report | Last day of the 9th month after the plan year end |
| Distribution of Summary Plan Description | Within 90 days after becoming a plan participant |
| Distribution of Safe Harbor Notice | At least 30 days (not more than 90 days) prior to the first day of the plan year utilizing the Safe Harbor provision |
| Distribution of Qualified Default Investment Alternative (QDIA) Notice | Initially, at least 30 days prior to the date of initial eligibility or 30 days in advance of the first investment in the QDIA. Additionally, defaulted participants must be given an annual notice at least 30 days (not more than 90 days) before each subsequent plan year |
| Distribution of Annual Notice of Fees for Participant Self-directed Accounts (404(a)(5) Fee Disclosures) | Initially, at least 30 days prior to a participant’s first investment, then annually thereafter. Any changes to the fees must be disclosed 30 days prior to the effect of such change. |
Learn more about all the comprehensive retirement solutions offered by EJReynolds and how we can help you put them to work for your clients.
This information is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor
such as an attorney or CPA.
