2017 Defined Benefit Plan Limit
For 2017, the Defined Benefit Plan Limit is $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 2026-08-29
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 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.