The IRS announced the inflation adjusted qualified plan and IRA contribution limits for 2022 in Notice 2021-61 on November 4, 2021. The new numbers include significant increases. However, importantly the limit on contributions to IRAs remain the same at $6,000, with an additional $1,000 if 50 or older. On the other hand, the limit for elective deferrals for 401(k) plans have increased from $19,500 to $20,500, though the catch-up limit remains $6,500. Additionally, the amount of compensation that can be considered under a defined contribution plan has increased by $15,000 from $290,000 to $305,000. Likewise, the 415 limit on the total annual amount that can be contributed to a defined contribution plan has increased from $58,000 to $61,000.
CalSavers is California’s mandated payroll deduction IRA program that I have written about many times (See CalSavers Saved From ERISA Preemption By District Court, CalSavers Not Preempted By ERISA! ). California law requires employers of a certain size that do not offer a retirement plan to withhold 5% of compensation of employees and pay it over to CalSavers who invests it into Roth-IRAs for the employee, unless the employee opts out. Next year, CalSavers applies to all employers with 5 or more employees. Because the CalSavers program (as well as similar programs in other states) utilizes IRAs, employees simply can’t save as much as they could through an employer sponsored program. For example, in 2022 an employee over age 50 can contribute $27,000 in salary reduction elective deferrals into a 401(k) plan. Meanwhile, the same employee could only contribute $7,000 into a Roth-IRA under CalSavers. That is a significant difference of $20,000. These numbers reiterate how from a retirement savings standpoint, an employer sponsored plan is more advantageous than CalSavers.
The Howard Jarvis Taxpayers Association (HJTA) has challenged CalSavers from its enactment, maintaining that it was preempted by ERISA. In May, the Ninth Circuit Court of Appeals upheld the lower court’s dismissal of the complaint. See Ninth Circuit Holds CalSavers Is Not Preempted By ERISA. . . 6/30 Deadline Approaching. HJTA filed a petition of certiorari with the U.S. Supreme Court requesting that they hear its appeal on October 12, 2021. CalSavers filed a waiver of its right to respond on October 18. However, on November 2, the Court requested that state Treasurer Fiona Ma file a response on behalf of CalSavers. While the high Court has not yet decided whether it will hear HJTA’s appeal, this action certainly indicates it is leaning that way. Should the Court hold that CalSavers is preempted by ERISA, the fact that employer sponsored plans allow for greater retirement savings won’t matter as CalSavers won’t be an option any longer. However, this could have a chilling effect on employer’s adopting new plans as they would no longer have the incentive to avoid CalSavers.