401(k) Match Limits: What Payroll Administrators Need to Know
It’s a relatively small change, but it’s a change for payroll administrators to take notice of. As of November 2019, your employees’ contribution limits for their 401(k) increased to $19,500 from $19,000. The increase raises the total annual contribution amount (employee plus employer contribution) to $57,000 or 100% of the employee’s salary if they make less than that. Most companies typically offer 3-6% in matching funds, but there is no limit to the amount an employer can contribute as long as the annual cap isn’t reached.
2020 & 2019 401(k) Match Limits
| Defined Contribution Plan Limits | 2020 | 2019 | Difference |
| Maximum employee contribution | $19,500 | $19,000 | +$500 |
| Catch-up contribution for employees aged 50 or older | $6,500 | $6,000 | +$500 |
| Total contribution maximum (employer + employee) | $57,000 | $56,000 | +$1,000 |
| Total contribution maximum (employer + employee) for employees aged 50+ | $63,500 | $62,000 | +$1,500 |
| Employee compensation limit | $285,000 | $280,000 | +$5,000 |
| Key employee salary threshold | $185,000 | $180,000 | +$5,000 |
| Highly compensated employee salary threshold | $130,000 | $125,000 | +$5,000 |
401(k) Contribution Limits
A very important aspect of your 401(k) program for you and your company’s employees to keep in mind: The total annual contribution amount is an individual limit meaning that it applies to all 401(k) plans an employee has. It’s important to make sure they’re keeping a close eye on their annual total if they have multiple accounts.
No matter how much money an employee makes, only the first $285,000 is eligible for employer and employee contributions. This cap was put in place to help ensure retirement savings are equitable across the board for all employees.
What’s a 401(k) Catch-Up Contribution?
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) created the catch-up contribution provision so older employees could set aside enough savings for retirement. Your employees who are 50 and older qualify to contribute an extra $6500 a year to their account.
What Are Highly Compensated and Key Employees?
The IRS defines a highly compensated employee as:
- Someone who owns more than 5% interest in the company regardless of how much compensation that person earned, or
- Someone whose salary is $130,000 or greater
Key employees are either:
- A company officer who makes more than $185,000
- A 5% owner of the business, or
- An employee who owns more than 1% of the business and makes more than $150,000
The Employee Retirement Income Security Act (ERISA) requires employers to undergo 401(k) discrimination testing every year to ensure plans are not favoring higher-income employees over those who earn less.
How to Help Ensure 401(k) Compliance
Many companies struggle with the administrative burden required for handling the recordkeeping and payroll data involved in 401(k) management. If that sounds like you, check out our 401(k) plan administration. Critical information like deferral changes, loans, matches and demographic data can be accessed and updated without the need for time-consuming manual processes.
Buyer's Guide To HCM And Payroll Technology
An HCM platform is the foundation of your business, and choosing the technology is one of the most important decisions you'll make.
Get ExpertiseMore to Discover
What is a W-4 Form?
What is a W-4 Form? W-4 forms are essentially very basic tax returns filled out by employees. Specifically, it tells employers the correct amount of tax to withhold from the employee’s paycheck. Need a W-4 Form? Download it here. Why are W-4s important? The accuracy of an employee’s W-4 submission will determine the size of their tax refund (or bill) at the end of the year. The amount withheld should be as close as possible to their actual tax obligation—a big deficit can be an unwelcome surprise and may be accompanied by further penalties. Withholding more than necessary is considered by some employees as an easy way to save but, while refunds may seem like a nice treat, you are taking away the chance for employees to invest (or use)...
Case Study: Price Brothers, Inc.
A need for robust reporting tools and a modern HR and payroll platform with onboarding capabilities led Price Brothers, Inc., to Paycor. “We’re constantly hiring and looking for skilled trade help on a daily basis. Now they can fill out the application online and we can email them the new-hire paperwork. They can complete everything online before their first day.” - Kim McLaughlin, CFO, Price Brothers, Inc. Why Price Brothers, Inc., left their payroll provider Price Brothers, a Charlotte, N.C.-based plumbing contractor who specializes in new-home construction, needed a more modern HR and payroll platform that could keep up with their growing business. Their former solution wasn’t intuitive and didn’t collect all the data they needed for...
How to Pay 1099 Employees
As the gig economy grows more employers are looking to hire independent contractors (aka 1099 workers). But since paying independent contractors isn’t a walk in the park, many employers are looking for step-by-step instructions. Here’s a breakdown of everything you need to know: How Do I Pay a 1099 Worker? This subject is something you will need to discuss in detail with the person you’re hiring for the job. Often, they will have a written contract that stipulates how and when they should be paid. The two most common methods of payment are hourly and by the job or project. Some independent contractors — such as attorneys — prefer to be paid on retainer, which means you pay them a lump sum at the beginning of each month in return for a...