2017 Defined Benefit Plan Limit
For 2017, the Defined Benefit Plan Limit figures are $215,000 (Annual benefit under a defined benefit plan) and $54,000 (Defined contribution plan limit).
Effective 2017-01-01Source: Notice 2016-62 (IRS)Verified 2026-09-02
Compared with 2016
| Item | 2016 | 2017 | Change |
|---|---|---|---|
| Annual benefit under a defined benefit plan | $210,000 | $215,000 | +$5,000 (+2.4%) |
| Defined contribution plan limit | $53,000 | $54,000 | +$1,000 (+1.9%) |
Who it applies to
Participants in qualified defined benefit plans and defined contribution plans
What changed this year, and why
For 2017, the IRS adjusted retirement plan limits under Section 415 of the Internal Revenue Code for cost-of-living increases.
Common questions
- What is the annual benefit limit for a defined benefit plan in 2017?
- Effective January 1, 2017, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is $215,000.
- What is the defined contribution plan limit for 2017?
- The limitation for defined contribution plans under Section 415(c)(1)(A) is $54,000 for 2017.
The benefit limit is the lesser of a dollar cap and your average pay
For 2017, the IRS caps the annual retirement benefit a participant can receive from a defined benefit plan. The limit is the lesser of two amounts: (1) 100% of the participant's average compensation for his or her highest 3 consecutive calendar years, or (2) $215,000. This means that even if a participant's average pay over the best three years exceeds $215,000, the annual benefit paid at retirement cannot go above the dollar cap. The cap is adjusted periodically for cost-of-living increases; for example, it rises to $220,000 for 2018. The $215,000 figure applies to benefits payable in the form of a straight life annuity beginning at age 62. If benefits begin earlier or later, or are paid in a form other than a straight life annuity, the limit may be adjusted accordingly.
Defined benefit plan. For 2017, the annual benefit for a participant under a defined benefit plan can't exceed the lesser of the following amounts. 1. 100% of the participant's average com- pensation for his or her highest 3 consecu- tive calendar years. Page 14 Chapter 4 Qualified Plans 2. $215,000 ($220,000 for 2018).
Publication 560 (2017), Retirement Plans for Small Business (IRS)
What makes a plan a defined benefit plan
A defined benefit plan is simply any retirement plan that is not a defined contribution plan. In a defined contribution plan, the contribution going into the account is what is specified. In a defined benefit plan, by contrast, the benefit to be paid out is what is specified - definitely determinable amounts - and the contributions are whatever actuarial calculations show are needed to fund that promised benefit. Because the contributions must be figured using actuarial assumptions and computations, most employers need continuing professional help to maintain a defined benefit plan. This structure is why the limit on the annual benefit is expressed as a dollar cap and a percentage of pay, rather than as a cap on contributions.
A defined benefit plan is any plan that isn't a de- fined contribution plan. Contributions to a de- fined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants.
Publication 560 (2017), Retirement Plans for Small Business (IRS)
The compensation an employer may take into account
When figuring the deduction limit for plan contributions, there is a cap on the amount of compensation an employer may take into account for each employee. For 2017, the maximum compensation that can be taken into account is $270,000. This cap is indexed for inflation and rises to $275,000 in 2018. Elective deferrals are included in compensation for this purpose, even though they are not themselves subject to the deduction limit. The compensation limit applies regardless of how much an employee actually earns; if an employee's pay exceeds $270,000 in 2017, only $270,000 of it is counted when testing contributions and benefits against the annual additions or benefit limits.
The maximum compensation that can be taken into account for each employee in 2017 is $270,000 ($275,000 in 2018).
Publication 560 (2017), Retirement Plans for Small Business (IRS)
The separate limit on a defined contribution plan
In addition to the defined benefit limit, a defined contribution plan has its own separate cap on what may go into a participant's account each year. For 2017, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of two amounts: 100% of the participant's compensation, or $54,000. Catch-up contributions, which are available to older participants, are not counted toward this limit. The $54,000 dollar cap is also indexed for inflation and increases to $55,000 for 2018. Employer contributions, employee contributions, and forfeitures allocated to the account all count toward this annual additions limit.
For 2017, a de- fined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant can't exceed the lesser of the following amounts. 1. 100% of the participant's compensation. 2. $54,000 ($55,000 for 2018).
Publication 560 (2017), Retirement Plans for Small Business (IRS)
Why the deduction has to be figured by an actuary
The deduction a plan sponsor may take for contributions to a defined benefit plan is not a simple arithmetic calculation based on the amounts contributed. Because a defined benefit plan promises a specific benefit at retirement, the contribution needed each year depends on actuarial assumptions about interest rates, mortality, employee turnover, and other factors. As a result, the IRS requires that the deduction limit be figured by an actuary. The actuary computes the funding target and the minimum and maximum deductible contributions under the plan's actuarial cost method. In doing so, the actuary may not take into account any contributions or benefits that exceed the annual benefit or compensation limits described elsewhere. This is why most employers who sponsor a defined benefit plan need continuing professional help from an actuary.
Defined benefit plans. The deduction for con- tributions to a defined benefit plan is based on actuarial assumptions and computations. Con- sequently, an actuary must figure your deduc- tion limit.
Publication 560 (2017), Retirement Plans for Small Business (IRS)
How many employees the plan has to cover
Under Internal Revenue Service rules for 2017, a defined benefit plan must satisfy a minimum coverage requirement to remain a qualified plan. The plan must benefit at least the lesser of 50 employees or the greater of 40% of all employees or two employees. If the employer has only one employee, the plan must benefit that employee. This rule ensures that defined benefit plans do not exclusively benefit highly compensated employees but instead provide meaningful coverage to a broad cross-section of the workforce. Employers sponsoring a defined benefit plan should review their participant counts and employee roster each year to confirm the plan continues to meet this threshold. Failing the minimum coverage test can jeopardize the plan's qualified status and the tax advantages that flow from it, including the deductibility of employer contributions and the tax-deferred growth of plan assets. The 2017 annual benefit limit under a defined benefit plan is $215,000.
Minimum coverage requirement must be met. To be a qualified plan, a defined benefit plan must benefit at least the lesser of the fol- lowing. 1. 50 employees, or 2. The greater of: a. 40% of all employees, or b. Two employees. If there is only one employee, the plan must benefit that employee.
Publication 560 (2017), Retirement Plans for Small Business (IRS)
The plan has to exist before the year it covers ends
To claim a deduction for contributions made to a defined benefit plan for a given tax year, the plan must be formally adopted by the last day of that year. For employers using a calendar tax year, this deadline is December 31. A plan established after the close of the tax year cannot support a deduction for contributions attributed to that prior year, even if the contributions are made before the employer's tax filing deadline. Employers considering a year-end adoption should ensure the written plan document is executed and dated on or before December 31. This rule applies regardless of whether the plan is newly created or an existing plan is being amended. Meeting the set-up deadline is a prerequisite to taking advantage of the 2017 defined benefit plan limits, including the $215,000 annual benefit cap.
Set-up deadline. To take a deduction for con- tributions for a tax year, your plan must be set up (adopted) by the last day of that year (De- cember 31 for calendar-year employers).
Publication 560 (2017), Retirement Plans for Small Business (IRS)
Contributing more than the limit can trigger a 10% excise tax, but not for a defined benefit plan's minimum funding
Contributions that exceed the employer's deduction limit are called nondeductible contributions, and the IRS generally imposes a 10% excise tax on them. The tax applies to nondeductible contributions made to qualified pension plans, profit-sharing plans, and SEPs, and must be reported on Form 5330. There is an important exception for defined benefit plans, however: the 10% excise tax does not apply to any contribution made to satisfy the minimum funding requirement of a defined benefit plan, even if that contribution exceeds the employer's earned income from the trade or business for which the plan is established. For 2017, the annual benefit under a defined benefit plan is $215,000; if the plan's actuary determines that funding above that figure is needed to meet the minimum funding standard, the extra amount is not penalized with the excise tax. The tax still applies to other nondeductible contributions that are not tied to minimum funding.
The 10% excise tax doesn't apply to any contri- bution made to meet the minimum funding re- quirements in a money purchase pension plan or a defined benefit plan. Even if that contribu- tion is more than your earned income from the trade or business for which the plan is set up, the difference isn't subject to this excise tax.
Publication 560 (2017), Retirement Plans for Small Business (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
Notice 2016-62 (IRS)
- Annual benefit under a defined benefit plan
Effective January 1, 2017, the limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) is increased from $210,000 to $215,000.
- Defined contribution plan limit
The limitation for defined contribution plans under § 415(c)(1)(A) is increased in 2017 from $53,000 to $54,000.