Defined Benefit Pension Plan Limits ⏬👇

The annual defined benefit pension plan limits are the maximum amount you can contribute to your retirement savings plans. This limit applies to the total of all contributions made by your employer or yourself. You can also contribute above this limit, but the amount over the limit will be treated as taxable income in the year it is contributed.

The Internal Revenue Service (IRS) has recently increased the amount of money that can be contributed to a defined-benefit pension plan. The annual limit on contributions for 2018 is $280,000 and for 2019 it is $300,000. This shows that there is a strong push for employees to save for retirement through defined benefit plans, even though they have not been offered a match by their employer. With the increases in contribution limits, employees have more incentive to work hard throughout their career to ensure they can retire someday and receive the benefits they deserve.

A defined benefit pension plan enables employers to provide employees with a retirement income based on their earnings and length of service. It is a pension plan in which the amount of your monthly benefit is determined by the amount of your salary and the number of years you worked for the company. This information was given by the IRS.

Pension Benefit Plan

The limits are determined in part by whether the plan is top heavy, has safe harbor provisions (401(k) plans and certain 457(b) plans), or is a simple retirement account. The 401(k) safe harbor limits are determined by averaging the contributions to all of your employer’s eligible defined contribution plans and then multiplying that amount by 2%. In addition, the limits for defined benefit plans such as traditional pension plans and cash balance plans under Internal Revenue Code Section 415 consist of both a dollar limit ($210,000 for 2018) and percentage of income limit ($215,000 for 2018).

You can benefit from lower expenses with a defined contribution plan. Lower investment costs, reduced administrative expenses and fewer costs from tracking separate individual participants create many advantages for defined contribution plans. You can typically reduce your pension costs by 25% to 30% when you move to a DC plan.

In response to growing concerns over the safety of defined benefit pension plans, the Pension Protection Act (PPA) amended the Internal Revenue Code in 2006 to reduce the maximum amount that a single employer may contribute each year for all of its employees.