Retirement Plan Dollar Limits Unchanged for 2010

October 22, 2009

The Internal Revenue Service has announced that various retirement plan limits and thresholds in effect for 2009 will remain unchanged for 2010, because the applicable cost-of-living index has not increased. These limits and thresholds include the following:

2010 Retirement Plan Limits

  • Includable Compensation. The 2010 annual limit on the amount of a participant’s total compensation that can be taken into account under a qualified plan or a Section 403(b) annuity contract remains $245,000.
  • Defined Contribution Annual Addition Limit. The 2010 dollar limit on aggregate annual additions (including contributions and forfeiture allocations) under an employer’s defined contribution plans remains $49,000.
  • Defined Benefit Maximum. The aggregate annual benefit limit under an employer’s defined benefit plans remains $195,000 for 2010.
  • Definition of Key Employee. The dollar threshold on compensation for determining whether an officer should be classified as a “key employee” under a top-heavy plan remains $160,000 for 2010.
  • Highly Compensated Employees. The dollar threshold on compensation that is used to determine whether an individual should be classified as a “highly compensated employee” (HCE) remains $110,000 for 2010. Thus, under the “look-back” rule, an individual earning more than $110,000 in 2010 will be treated as an HCE for 2011. For the year 2010, an individual will be treated as an HCE if his or her compensation in 2009 exceeded $110,000. Note that if the employer elects to apply the “top-20%” rule for determining HCEs, some individuals with compensation above these limits may not be considered HCEs.
  • Compensation Limit for Governmental Plans. The annual compensation limit for certain grandfathered governmental plans remains $360,000 for 2010.
  • ESOPs. The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period remains $985,000 for 2010, while the amount used to determine the lengthening of the five-year distribution period remains $195,000.
  • SEPs and SIMPLE Retirement Plans. The minimum compensation for an employee that will require an employer contribution to a simplified employee pension plan remains $550 for 2010, and the 2010 annual limit for salary reduction contributions under a SIMPLE retirement plan (Savings Incentive Match Plan for Employees of Small Employers) remains $11,500.
  • Elective Deferral Contributions. The annual limit on elective deferrals to Section 401(k) plans, Section 403(b) annuity contracts and eligible Section 457 plans remains $16,500 for 2010.
  • Age 50 and Older Catch-Up Contributions. The annual limit for catch-up contributions for individuals age 50 or over under Section 401(k) plans, Section 403(b) annuity contracts and eligible Section 457 plans sponsored by governmental entities remains $5,500 for 2010. For SIMPLE 401(k) or IRA accounts, the 2010 annual limit remains $2,500.

Other 2010 Benefits-Related Limits

  • Health Savings Accounts (HSAs). The 2010 annual deduction limit for contributions to an HSA for an individual with self-only coverage under a high deductible health plan (HDHP) will be $3,050. For an individual with family coverage under an HDHP, the limit will be $6,150. An HDHP will need to have an annual deductible that is not less than $1,200 for self-only coverage or $2,400 for family coverage. In addition, the annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) may not exceed $5,950 for self-only coverage or $11,900 for family coverage. Individuals age 55 and older who are covered by an HDHP can make additional “catch-up” contributions each year until they enroll in Medicare. By statute, the catch-up contribution limit for 2010 and subsequent years will be $1,000.
  • Transportation Fringe Benefits. The American Recovery and Reinvestment Tax Act of 2009 provided a temporary increase in the amount excludable from gross income for certain employer-provided transportation fringe benefits. For months beginning after Feb. 17, 2009 and before Jan. 1, 2011, the monthly limit for transportation in a commuter highway vehicle and any transit pass is the same as the amount in effect for qualified parking. Thus, for taxable years beginning in 2010, the monthly limit is $230 for: (1) the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass; and (2) the fringe benefit exclusion amount for qualified parking.
  • Long-Term Care Insurance Premiums. Long-term care insurance premiums qualify as deductible “medical care” costs up to certain limits for a taxable year. The applicable inflation-adjusted limits for 2010 are:

Age Attained Before End of Taxable Year Limit
40 or under $330
More than 40 but not more than 50 $620
More than 50 but not more than 60 $1,230
More than 60 but not more than 70 $3,290
More than 70 $4,110

The HSA and long-term care insurance limits reflect slight increases from 2009, because these limits are not adjusted using the same cost-of-living index used for retirement plan limits.

2010 Social Security Wage Base

The Social Security Administration has announced that the Social Security wage base remains $106,800 for 2010.

For additional information related to these retirement and other benefit plan dollar limit changes or any other questions regarding plan qualification, please contact the author or any other member of the McGuireWoods Employee Benefits or Labor & Employment teams.