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Benefit and Contribution Limits for Employer-Sponsored Retirement Plans

December 10, 2021


There are two main types of employer-sponsored retirement plans: defined-benefit plans and defined-contribution plans. A defined-benefit plan such as 401(k) provides a specific retirement benefit amount when employees retire; while, under a defined-contribution plan, employees contribute a portion of their gross salaries to invest in the funds for retirement over time, and an employer may choose to match the employee contributions.


For defined benefit plans, the benefit limit is the lesser of $230,000 for 2021 ($245,000 for 2022), 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, total annual contributions (annual additions) to all of each employee’s accounts in plans maintained by one employer are the lesser of $58,000 for 2021 ($61,000 for 2022), or 100 percent of the employee’s compensation. These “annual additions” include employer contributions, employee contributions, and forfeitures. Forfeitures are the plan assets that were not fully vested by the employees when the participants terminate the employment. Employee’s contribution of 401(k) plans is limited to $19,500 ($20,500 for 2022) per year plus $6,500 ($6,500 for 2022) catch-up contribution if his or her age is 50 or older. Moreover, 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.