IRS Announces Benefit Plan Limits for 2022

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.