The IRS has released the covered compensation tables for the 2021 plan year. For purposes of determining covered compensation for the 2021 year, the taxable wage base is $142,800.
Background. Code Sec. 401(a)(4) provides that a plan is a qualified plan only if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees.
Under the Code Sec. 401(l) “permitted disparity” rules, plans that are integrated with social security may, within limits, provide plan participants with an additional contribution or benefit based on compensation above a specified integration level without violating the nondiscrimination rules. For defined benefit plans, the integration level specified in the plan must satisfy certain rules, including rules based on “covered compensation.”
Code Sec. 401(l)(5)(E)(i) provides that an employee’s covered compensation is the average of the contribution and benefit bases (taxable wage base) in effect under section 230 of the Social Security Act (the “Act”) for each year in the 35 year period ending with the year in which the employee attains social security retirement age.
For purposes of determining an employee’s covered compensation, a defined benefit plan may use the covered compensation tables developed by the IRS. (Reg §1.401(l)-1(c)(7)(ii))
2021 covered compensation tables. For purposes of determining covered compensation for the 2021 plan year, the taxable wage base is $142,800.
IRS has also issued compensation tables that reflect this taxable wage base amount.
Reference. For covered compensation , see FTC 2d/FIN ¶ H-7045.
