Defined-Contribution Retirement Plan Contribution Maximums Will Remain Flat in 2010

The maximum contribution that can be made to 401(k) and other defined-contribution plans, and the maximum benefit that can be funded through defined benefit plans will hold even in 2010, an Obama administration official said Wednesday, October 14.

The senior official said the Internal Revenue Service will formally announce the 2010 pension plan contribution and funding maximums later this week.

The IRS decision will end uncertainty among employers and consultants whether the limits might decrease because the cost of living, on which the limits are based, has gone down the past 12 months.

But the senior official said the administration’s interpretation of federal law is that 401(k) and other retirement plan limits cannot be decreased even if the cost of living declines.

As a result, the maximum annual contribution an employee can make through salary reduction to a 401(k) plan will remain at $16,500 in 2010, while the so-called catch-up contribution that employees age 50 and older can make to 401(k) and certain other defined-contribution plans will stay at a maximum of $5,500.

In addition, the maximum contribution to defined-contribution plans will remain at $49,000 per participant. This includes employer contributions.

The maximum annual benefit that can be funded through a defined-benefit plan next year will remain at $195,000, while the amount of employee compensation that can be considered in calculating pension benefits and contributions to defined-contribution plans will remain at $245,000.

The definition of a highly compensated employee for 401(k) plan nondiscrimination testing purposes in 2010 will be the same as in 2009, which is employees who earn at least $110,000 a year.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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