2018 Defined Benefit Plan Limit
For 2018, the Defined Benefit Plan Limit is $220,000 (Annual benefit under a defined benefit plan) and $55,000 (Defined contribution plan limit).
Effective 2018-01-01Source: Notice 2017-64 (IRS)Verified 2026-08-29
Compared with 2017
| Item | 2017 | 2018 | Change |
|---|---|---|---|
| Annual benefit under a defined benefit plan | $215,000 | $220,000 | +$5,000 (+2.3%) |
| Defined contribution plan limit | $54,000 | $55,000 | +$1,000 (+1.9%) |
Who it applies to
Sponsors and participants of qualified defined benefit and defined contribution retirement plans subject to IRC § 415.
What changed this year, and why
The IRS announced cost-of-living adjustments to retirement plan limits for 2018 under Internal Revenue Code Section 415.
Common questions
- What is the maximum annual benefit under a defined benefit plan for 2018?
- For 2018, the limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) is $220,000, effective January 1, 2018.
- What is the defined contribution plan limit for 2018?
- For 2018, the limitation on contributions under defined contribution plans under § 415(c)(1)(A) is $55,000.
The benefit limit is the lesser of a dollar cap and your average pay
For 2018, the annual benefit a participant can receive under a defined benefit plan cannot exceed the lesser of two amounts. The first amount is 100% of the participant's average compensation calculated over his or her highest 3 consecutive calendar years. The second amount is $220,000, which was adjusted to $225,000 for 2019. This means that even if a participant's average compensation over the relevant period exceeds $220,000, the annual benefit is still capped at that dollar amount. The plan must apply both tests and use the lower result to determine the maximum permissible benefit. These limits ensure that tax-qualified defined benefit plans do not provide disproportionately large benefits to highly compensated participants.
For 2018, 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. 2. $220,000 ($225,000 for 2019).
Publication 560 (2018), Retirement Plans for Small Business (IRS)
What makes a plan a defined benefit plan
A defined benefit plan is identified by what it is not: any plan that is not a defined contribution plan. Unlike defined contribution plans, where each participant has an individual account and the benefit depends on contributions and investment results, a defined benefit plan promises a specific, definitely determinable benefit to each participant. Because the benefit is predetermined, the employer's required contributions are not simply a fixed percentage of pay. Instead, contributions must be calculated using actuarial assumptions and computations to determine what funding is needed to provide those promised benefits. This actuarial work makes defined benefit plans more complex to administer, and the IRS notes that employers will generally need continuing professional help to maintain one.
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 (2018), Retirement Plans for Small Business (IRS)
The compensation an employer may take into account
For each employee in 2018, an employer may take into account only up to $275,000 of compensation when calculating plan contributions and benefits. This ceiling was raised to $280,000 for 2019 and is adjusted periodically for inflation. Any compensation above this amount is disregarded for plan purposes, even if the employee actually earned more. When applying this limit, elective deferrals are included in the definition of compensation, and elective deferrals themselves are not subject to the limit. The cap applies separately to each employee, so the employer does not aggregate compensation across participants. For self-employed individuals, a further reduction applies when figuring the deduction for contributions made for their own account.
The maximum compensation that can be taken into account for each employee in 2018 is $275,000 ($280,000 in 2019).
Publication 560 (2018), Retirement Plans for Small Business (IRS)
The separate limit on a defined contribution plan
For 2018, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant can't exceed the lesser of two amounts: 100% of the participant's compensation, or $55,000 ($56,000 for 2019). This limit applies to the total of all contributions and additions credited to a participant's account during the year, not including investment earnings. The limit ensures that tax-qualified defined contribution plans do not allow excessive tax-deferred accumulation. Catch-up contributions for participants age 50 or older are not subject to this limit and can be made in addition to the amounts described here.
For 2018, 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. $55,000 ($56,000 for 2019).
Publication 560 (2018), Retirement Plans for Small Business (IRS)
Why the deduction has to be figured by an actuary
For defined benefit plans, the employer's tax deduction for contributions is not based on a simple percentage of payroll or a fixed formula. Instead, the deduction depends on actuarial assumptions and computations that project future benefit payments, participant demographics, interest rates, mortality tables, and other variables. Because these calculations require specialized expertise, the IRS requires that an actuary figure the deduction limit. The actuary determines how much the employer may deduct for the year based on the funding needed to support the plan's promised benefits. The employer may not take into account any contributions or benefits that exceed the annual limits, and the actuarial determination ensures the deduction reflects only the amount necessary to fund those permitted benefits.
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 (2018), 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 2017-64 (IRS)
- Annual benefit under a defined benefit plan
Effective January 1, 2018, the limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) is increased from $215,000 to $220,000.
- Defined contribution plan limit
The limitation for defined contribution plans under § 415(c)(1)(A) is increased in 2018 from $54,000 to $55,000.