Benefit & Comp Limits

A guide to plan limitations.

According to the IRS

Contributions to a defined benefit plan are based on what is needed to provide definite determinable benefits to plan participants. Actuarial assumptions and computations are required to figure out these contributions. In general, the annual benefit limits for a participant under a defined benefit plan cannot exceed the lesser of: 100% of the participant’s average compensation for his or her highest 3 consecutive calendar years, or $245,000 for 2022 ($230,000 for 2021 and 2020; $225,000 for 2019).

Benefit Limit vs Comp Limit

The Internal Revenue Code (IRC) Section 415 outlines that a participant’s annual pension benefit cannot be greater than the highest three-year average of compensation.

What this means is that if you make $300k, $500K, and $150K in a 3-year span, your average 3-year compensation is $316K. Therefore, your pension benefit cannot be greater than that number. In this hypothetical case, $316,000.

Additionally, the IRC section 415(b)(1) – outlines that a participant’s annual benefit cannot exceed the designated §415 comp limit; A specified dollar amount that is indexed each year, specifically $245,000 for 2022.

The §415 comp limit means that, even if your average compensation for 3 years is $316K as stated in the first example, your cap on pension benefits will be $245K for the year 2022 ($230K in 2021, $225K in 2019, $215K in 2107.)

If you start a Defined Benefits plan after age 65, the dollar amount you can contribute can go up beyond the dollar limit, but the pension distribution is still governed by the comp limit. In the case of an active plan participant who is past normal retirement age, it is especially important to stay on top of the actuarial increases provided by the plan vs any additional accruals to ensure the participant does not exceed the §415 comp limit.

Plan Limits and Cost of Living Increases

The Internal Revenue Codes increase periodically take the cost of living increases into account.

See the chart for the past 2 years and reach out to our team for estimates for the future cost of living increases.

401(k) and Deferral Limit$20,500$19,500
401(k) Catch-up Contribution
(available for participants 50 and
$6,500 $6,500
Annual Compensation Limit $305,000 $290,000
Defined Benefit
415 Benefit Limit
Defined Contribution
415 Contribution Limit
$61,000 $58,000
Dollar Definition Limit
for Highly Compensated
$135,000 $130,000
Dollar Definition Limit
for Key Employee
Social Security Wage Base$147,000 $142,800

Defined Benefit Plan Deduction Calculator

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