Following announcements by both the Internal Revenue Service and the Social Security Administration, we know most of the dollar amounts that employers will need in order to administer their benefit plans for 2020. The key dollar amounts for retirement plans and individual retirement accounts (“IRAs”) are shown on the front side of our 2020 limits card.
The reverse side of the card shows a number of dollar amounts that employers will need to know in order to administer health flexible spending accounts (“FSAs”), health savings accounts (“HSAs”), and high-deductible health plans (“HDHPs”), as well as health plans that are not grandfathered under the Affordable Care Act.
Most of the new numbers are higher than their 2019 counterparts. For instance, the Section 415 limit on annual additions to a defined contribution retirement plan participant’s account will increase from $56,000 to $57,000, the annual compensation limit will increase from $280,000 to $285,000, and the annual 401(k), 403(b), and 457(b) deferral limit will increase from $19,000 to $19,500. The annual retirement plan catch-up contribution limit will increase from $6,000 to $6,500.
The annual compensation threshold used to identify highly compensated employees (“HCEs”) will increase to $130,000 for 2020. Because the 2020 limit will not become relevant until 2021, when employers “look back” at their employees’ 2020 compensation, employers should consider their employees’ 2019 compensation (for which the limit was $125,000) when identifying HCEs for 2020, as well as 5% owners during either 2019 or 2020.
The annual limit on IRA contributions (whether traditional or Roth) will remain the same at $6,000, as will the annual limit on IRA catch-up contributions, which will remain $1,000. The Social Security taxable wage base (which is important for retirement plans that are “integrated” with Social Security) will increase from $132,900 to $137,700.
The maximum contribution to an HSA will increase slightly from $3,500 to $3,550 for individual coverage, and from $7,000 to $7,100 for family coverage. The maximum HSA catch-up contribution will remain $1,000.
The minimum deductible for any HDHP (which must accompany any HSA) will increase slightly from $1,350 to $1,400 for individual coverage, and from $2,700 to $2,800 for family coverage. For 2020, the limit on total annual HDHP out-of-pocket expenses (deductibles, co-payments, and other amounts – but not premiums) will increase to $6,900 for self-only coverage, and $13,800 for family coverage.
The 2020 maximum out-of-pocket limit for “essential health benefits” provided under all non-grandfathered health plans will increase from $7,900 to $8,150 for individual coverage, and from $15,800 to $16,300 for family coverage. Because the out-of-pocket limits for essential health benefits are adjusted using the “premium adjustment percentage” calculated by the Department of Health and Human Services, and the maximum HDHP out-of-pocket expense is adjusted on the basis of the Consumer Price Index, it is not unusual to see a more significant change in the out-of-pocket limits for essential health benefits.
The limit on employee deferrals to health FSAs in 2020 will increase to $2,750. This limit applies only to salary reduction contributions under a health FSA, and not to employer contributions. For this purpose, however, any employer FSA contributions that could have been received in cash are treated as salary reduction contributions.
A laminated version of our 2020 limits card is available upon request. To obtain one or more copies, please contact any member of our Employee Benefits Group. You also can contact the Spencer Fane Marketing Department at 816-474-8100 or marketing@spencerfane.com.
