Part 2 of Fiduciary Responsibilities Under ERISA and the Internal Revenue Code

Federal Fiduciary Rules for Plan Trustees

Trustees of plans, whether they are corporate entities or individuals like company presidents or shareholders, have to abide by strict federal fiduciary rules. They must manage the fund solely in the interest of plan participants and beneficiaries. Loans to employees are allowed within certain limits, but employers who borrow from the plan face penalties.

Plan Benefits and Contributions Limits

In order to stop highly compensated employees from abusing qualified plans as tax shelters, there are limitations on plan benefits and employer contributions. These restrictions guarantee that a retirement plan provides benefits for a wide range of staff members instead of just rewarding those with high salaries.

Defined Benefit Plans’ Limitations on Benefits

Under a Defined Benefit Plan, the highest annual benefit payable cannot exceed:

• 100% of participant’s compensation averaged over three highest years of paid off salary
• or $230,000 (indexed in 2021).

This cap is adjusted for early retirement (reduced) and late retirement (increased).

Defined Contribution Plans’ Contribution Limits

"Annual additions" made to each participant's account under a Defined Contribution Plan have their limits set. This includes contributions by employers, employee salary reductions towards them as well as reallocated plan forfeitures which count too.

The limit should not go beyond either:

• 100 percent of an individual’s yearly earnings; or
• $58,000 (indexed in 2021). The dollar amount is indexed in increments worth $1,000 only.

Compensation Limitations

Only the first $290,000 of each employee’s annual compensation (in 2021, indexed) can be considered in the plan’s benefit or contribution formula. For instance, if an employee earns $300,000 annually in 2021, and the employer has a 10% money purchase plan, the maximum contribution for that employee would be $29,000 (10 percent of $290,000).