2022 Defined Benefit Plan Limit
For 2022, the Defined Benefit Plan Limit is $245,000 (Annual benefit under a defined benefit plan) and $61,000 (Defined contribution plan limit).
Effective 2022-01-01Source: Notice 2021-61 (IRS)Verified 2026-08-29
Compared with 2021
| Item | 2021 | 2022 | Change |
|---|---|---|---|
| Annual benefit under a defined benefit plan | $230,000 | $245,000 | +$15,000 (+6.5%) |
| Defined contribution plan limit | $58,000 | $61,000 | +$3,000 (+5.2%) |
Who it applies to
Participants in qualified defined benefit and defined contribution retirement plans governed by Internal Revenue Code Section 415.
What changed this year, and why
Effective January 1, 2022, the IRS adjusted the Section 415 limitations on retirement plan benefits and contributions for cost-of-living increases. The annual benefit under a defined benefit plan under Section 415(b)(1)(A) was raised to $245,000. The defined contribution plan limit under Section 415(c)(1)(A) was raised to $61,000. Both amounts were higher than the corresponding limits for the prior year.
Common questions
- What are the two main retirement plan limits for 2022?
- The annual benefit limit for a defined benefit plan under Section 415(b)(1)(A) is $245,000. The defined contribution plan limit under Section 415(c)(1)(A) is $61,000.
- When do these limits take effect?
- January 1, 2022.
The benefit limit is the lesser of a dollar cap and your average pay
For 2022, a defined benefit plan cannot pay a participant an annual benefit that exceeds the lesser of two amounts. The first amount is 100% of the participant's average compensation calculated over their highest 3 consecutive calendar years. The second amount is a fixed dollar cap of $245,000. This means that even if a participant's average compensation over their best 3-year period is very high, their annual retirement benefit from the plan is still limited to $245,000. Conversely, if a participant's average compensation is relatively low, their benefit is capped at that lower average amount rather than the dollar limit. The plan document must incorporate this limitation to remain qualified under the Internal Revenue Code.
Defined benefit plan. For 2022, 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 compensation for their highest 3 consecutive calendar years. 2. $245,000 for 2022 ($265,000 for 2023).
Publication 560 (2022), Retirement Plans for Small Business (IRS)
What makes a plan a defined benefit plan
A defined benefit plan is any plan that isn't a defined contribution plan. This definition distinguishes it from defined contribution plans, where the contribution amounts are specified and the ultimate benefit depends on investment returns. In a defined benefit plan, the retirement benefit is predetermined based on a formula, and contributions must be calculated using actuarial assumptions to ensure sufficient funds are available to pay those promised benefits. Because of this actuarial complexity, employers generally need continuing professional help to maintain a defined benefit plan and determine appropriate contribution levels each year.
A defined benefit plan is any plan that isn't a defined con- tribution plan.
Publication 560 (2022), Retirement Plans for Small Business (IRS)
The compensation an employer may take into account
When calculating contributions to a qualified retirement plan, employers cannot take into account compensation above a certain limit for each employee. For 2022, the maximum compensation that can be taken into account for each employee is $305,000. This limit increases to $330,000 in 2023. This means that even if an employee earns more than $305,000 in 2022, the employer can only use $305,000 as the basis for calculating plan contributions and deductions. The compensation limit applies separately to each employee participating in the plan and is adjusted annually for inflation. This cap affects both the contribution amounts and the tax deductions available to the employer.
The maximum compensation that can be taken into account for each employee in 2022 is $305,000 ($330,000 in 2023).
Publication 560 (2022), Retirement Plans for Small Business (IRS)
The separate limit on a defined contribution plan
For 2022, 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. The first limit is 100% of the participant's compensation. The second limit is $61,000 for 2022, which increases to $66,000 for 2023. These additions exclude investment earnings on the account balance. This means the total amount contributed to a participant's defined contribution account in a single year cannot be more than $61,000, regardless of how much the participant earns or how much the employer wants to contribute. If a participant's compensation is less than $61,000, the limit is their actual compensation amount. Catch-up contributions for participants age 50 or older are not subject to this limit.
For 2022, a defined contri- bution plan's annual contributions and other additions (ex- cluding earnings) to the account of a participant can't ex- ceed the lesser of the following amounts. 1. 100% of the participant's compensation. 2. $61,000 for 2022 ($66,000 for 2023).
Publication 560 (2022), Retirement Plans for Small Business (IRS)
Why the deduction has to be figured by an actuary
The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. Consequently, an actuary must figure your deduction limit. Unlike defined contribution plans where the deduction is more straightforward, defined benefit plans require complex calculations to determine how much can be deducted based on the promised benefits, participant demographics, and other factors. The actuary uses specialized tables and assumptions about interest rates, mortality, and other variables to calculate the appropriate deduction amount. This requirement ensures that the deduction claimed accurately reflects the cost of providing the defined benefits promised under the plan.
The deduction for contributions to a defined benefit plan is based on actuarial assump- tions and computations. Consequently, an actuary must figure your deduction limit.
Publication 560 (2022), 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 2021-61 (IRS)
- Annual benefit under a defined benefit plan
Effective January 1, 2022, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) of the Code is increased from $230,000 to $245,000.
- Defined contribution plan limit
The limitation for defined contribution plans under section 415(c)(1)(A) is increased in 2022 from $58,000 to $61,000.