How to Set Up a Defined Benefit Plan
Steps to Set Up a Defined Benefit Plan
Introduction
If you’re a business owner or high-income professional looking to maximize retirement savings and tax deductions, a Defined Benefit Plan may be one of your most powerful tools.
In this guide, we walk you through exactly how to set up a Defined Benefit Plan, what you need to consider, what the deadlines are, and how to tell whether it’s the right fit for you and your business.
Why Set Up a Defined Benefit Plan?
For business owners and high‑income professionals, a traditional Defined Benefit Plan or a Cash Balance Plan is one of the most effective accumulation vehicles available.
Unlike other retirement plans, Defined Benefit Plans allow you to make very large, tax‑deductible contributions, maximize savings, and accelerate your retirement nest‑egg growth.
Here are some additional reasons why Defined Benefit Plans are effective:
Unlike other retirement plans, Defined Benefit Plans allow you to make very large, tax‑deductible contributions, maximize savings, and accelerate your retirement nest‑egg growth.
Here are some additional reasons why Defined Benefit Plans are effective:
- Spouse participation boosts deductibility. If your spouse is involved in the business, they also can be included in the Plan, dramatically increasing tax‑deductible contributions on behalf of the household.
- No 25% compensation limit. Unlike SEP or 401(k) Plans, Defined Benefit and Cash Balance Plans do not limit employer contributions to 25% of plan compensation. This enables larger savings and lower payroll taxes.
- Lower payroll taxes. Unlike 401(k) Plans and SEPs, Defined Benefit Plans take into account historical, as well as current, plan compensation to determine the deductible contribution. Thus, a low compensation for the current year may not necessarily impact the contribution limit.
- Ideal for older and younger owners. If you’re closer to retirement age, you can “catch up” by contributing large amounts in a short period. If you’re younger, you may still benefit; establishing a plan early leverages more years of tax‑deferred growth and compounding.
In short, Defined Benefit and Cash Balance Plans are tools for accelerating retirement savings. They enable business owners to efficiently accumulate substantial assets, maximize tax deductions, and strategically grow long-term wealth—so you can save aggressively while minimizing your tax burden.
Who Should Consider a Defined Benefit?
Defined Benefit and Cash Balance Plans are ideal when you want to maximize deductible retirement contributions, especially when other retirement options like a Solo 401(k) or SEP-IRA fall short.
Here are three common situations where it could make sense to set up a Defined Benefit Plan or Cash Balance Plan.
1. You Have a Side Business and Want to Shelter the Income
If you own a side business in addition to your primary job, a Defined Benefit can dramatically increase how much of that income you shelter from taxes.
Why a Defined Benefit or Cash Balance Plan helps:
2. Your 401(k) Isn’t Enough to Meet Your Savings or Tax Goals
If you’re already maxing out a Solo 401(k), and it’s still not enough, setting up a Defined Benefit or Cash Balance Plan gives you access to significantly higher deductible contributions.
Why a Defined Benefit or Cash Balance Plan helps:
Here are three common situations where it could make sense to set up a Defined Benefit Plan or Cash Balance Plan.
1. You Have a Side Business and Want to Shelter the Income
If you own a side business in addition to your primary job, a Defined Benefit can dramatically increase how much of that income you shelter from taxes.
Why a Defined Benefit or Cash Balance Plan helps:
- You can contribute far above 401(k) Plan and SEP-IRA limits.
- Your 401(k) employee deferrals may be maxed out in your primary job.
- Contributions are not limited to 25% compensation like other plans.
- You may be able to deduct most or all of your side-business income.
- Combine it with a 401(k) Plan to further increase total contributions.
2. Your 401(k) Isn’t Enough to Meet Your Savings or Tax Goals
If you’re already maxing out a Solo 401(k), and it’s still not enough, setting up a Defined Benefit or Cash Balance Plan gives you access to significantly higher deductible contributions.
Why a Defined Benefit or Cash Balance Plan helps:
- Add $100k–$300k+ in annual retirement contributions.
- Accelerate savings in peak-earning years.
- Compress multiple years of retirement saving into a shorter window.
- Pair a Defined Benefit Plan with a 401(k) (“DB/DC combo”).
3. You Had a Strong Year and Want to Front-Load Contributions
If your business had a big, profitable year, a Defined Benefit Plan allows you to “front-load” deductions when they matter most.
Why a Defined Benefit or Cash Balance Plan helps:
- You can capture a large deduction in a high-income year.
- An actuary can design the Plan to contribute less in future years.
- You can amend the Plan to tie contribution levels to strong/lean years.
Setup Roadmap: 3-Step Process
Here is a roadmap to setting up your Defined Benefit or Cash Balance Plan:
Step 1: Define Objectives
Before any retirement plan is selected, the first step is to define your business and retirement goals. Knowing your goals upfront ensures the Plan is designed to achieve the results you want.
Step 2: Design the Plan
Once you have defined your objectives, a retirement vehicle can be selected. This could be a Defined Benefit Plan, Cash Balance Plan, or some other retirement vehicle. Once the type of plan has been chosen, it is tailored to your situation.
Step 3: Implement & Fund the Plan
To ensure that the Defined Benefit Plan is adopted timely, the client must sign the plan documents no later than the due date of the extended tax return for the applicable year.
The next step is to request a trust identification number, which will be attached to the Defined Benefit Plan. Additionally, required participant disclosures and notices are distributed. In some cases, an ERISA Fideltiy bond will be required.
Finally, the Defined Benefit Plan is funded. Contributions must be deposited by the filing of the corporate tax return with extensions for the applicable plan and tax year. Regardless, for a calendar year Plan, contributions cannot be deposited later than the September 15 following the year in which the Plan was effective.
Step 1: Define Objectives
Before any retirement plan is selected, the first step is to define your business and retirement goals. Knowing your goals upfront ensures the Plan is designed to achieve the results you want.
- What is the purpose of the Defined Benefit Plan?
- What is your target retirement age and targeted retirement savings?
- How much would you like to contribute each year?
- Front-load or level contributions?
- What are your business cash-flow constraints?
- How many owners and employees does the business currently have and is that expected to change?
- The answers to these questions drive the design
Carefully considering these questions is a crucial step, as it ensures your Defined Benefit or Cash Balance Plan is designed to meet your specific retirement and business goals.
Step 2: Design the Plan
Once you have defined your objectives, a retirement vehicle can be selected. This could be a Defined Benefit Plan, Cash Balance Plan, or some other retirement vehicle. Once the type of plan has been chosen, it is tailored to your situation.
- Specify the eligiblity requirements to include the desired employees and exclude everyone else. Although this may not always be possible, participation can be strategically defined.
- Define the benefit formulas to reflect the current and expected contribution funding pattern, as well as how contributions will be allocated to owners and employees.
- Specify how participants will be vested in their benefits, and define what constitutes a year of service for the benefit formula and vesting.
- Select other ancilliary provisions, such as loans, in-service distributions, who will be the Trustees, etc.
After the Plan is designed, it is summarized and presented to the client for approval. Once approved, the Defined Benefit Plan's adoption agreement is drafted and sent for the client's signature.
To ensure that the Defined Benefit Plan is adopted timely, the client must sign the plan documents no later than the due date of the extended tax return for the applicable year.
The next step is to request a trust identification number, which will be attached to the Defined Benefit Plan. Additionally, required participant disclosures and notices are distributed. In some cases, an ERISA Fideltiy bond will be required.
Finally, the Defined Benefit Plan is funded. Contributions must be deposited by the filing of the corporate tax return with extensions for the applicable plan and tax year. Regardless, for a calendar year Plan, contributions cannot be deposited later than the September 15 following the year in which the Plan was effective.
Key Deadlines & Compliance Requirements
Plan Adoption Deadline
In many cases, it is beneficial to adopt the plan before year-end. Businesses frequently put their Defined Benefit Plan in place by December 31 as part of year-end tax planning. This timing is particularly important for S Corporations, where the owner’s W-2 may need to be adjusted to reach a desired contribution amount. Once the year closes, W-2 compensation may not be able to be changed—potentially limiting the desired contribution.
Contribution Funding Due Date
Goverment Form Filing Deadline
Funding Status Certification
Other Filings and Participant Disclosures
- A Defined Benefit Plan must be adopted by the date you file your business tax return (including extensions) for the year you want the deduction.
- For example, if you operate on a calendar year, you may adopt the plan as late as September 15, 2026 and still take a 2025 tax deduction.
- However, the plan trust must also be established and funded by that same deadline, which means you need to adopt the plan well before the final due date to meet the contribution requirement.
In many cases, it is beneficial to adopt the plan before year-end. Businesses frequently put their Defined Benefit Plan in place by December 31 as part of year-end tax planning. This timing is particularly important for S Corporations, where the owner’s W-2 may need to be adjusted to reach a desired contribution amount. Once the year closes, W-2 compensation may not be able to be changed—potentially limiting the desired contribution.
Contribution Funding Due Date
- Generally, contributions for the 2025 plan year must be deposited by the date you file your business tax return (including extensions), but no later than September 15, 2026 for a calendar-year business and plan.
- Note that the September 15 deadline is not extended for weekends or holidays.
Goverment Form Filing Deadline
- For a calendar year plan, Form 5500 series, including Schedule SB, for the 2025 plan year is due by July 31, 2026. However, the deadline can be extended until October 15, 2026 (an automatic extension may apply in some situations).
- For Defined Benefit and Cash Balance Plans covered by the PBGC, the 2026 PBGC premium filing is due by October 15, 2026.
Funding Status Certification
- Generally, the Plan's actuary must certify the 2026 funded status of the Defined Benefit Plan (called the AFTAP) by no later than September 30, 2026.
Other Filings and Participant Disclosures
- Your Defined Benefit Plan actuary and/or TPA should make you aware of the deadlines for all participant disclosures.
Expected Plan Costs
Fee structures will vary across Defined Benefit Plan providers, but the types of fees you’ll encounter are generally consistent throughout the industry.
At Saber Pension, we use all-inclusive fixed fees for most services. Other providers may charge lower base fees but add surcharges for filings, calculations, or administrative tasks.
Common fee categories include:
Implementation fee:
One-time cost to set up the Defined Benefit or Cash Balance Plan
Annual administration:
Typically covers all required annual compliance work, such as:
Termination fees:
Ending a Defined Benefit or Cash Balance Plan requires a separate, multi-step process with additional actuarial work, so termination fees are typically charged in addition to regular administration costs.
Amendments:
A modest fee may apply when updating plan provisions or modifying the benefit formula, which directly affects the contribution range.
Plan restatement:
Most small Defined Benefit Plans use an IRS pre-approved document. Approximately every six years, the IRS requires these documents to be updated and re-approved to reflect changes in pension law and regulations. Note that the restatement cycle is driven by the IRS’s timeline—not by how long your individual plan has been in place.
At Saber Pension, we use all-inclusive fixed fees for most services. Other providers may charge lower base fees but add surcharges for filings, calculations, or administrative tasks.
Common fee categories include:
Implementation fee:
One-time cost to set up the Defined Benefit or Cash Balance Plan
Annual administration:
Typically covers all required annual compliance work, such as:
- Form 5500 series and Schedule SB
- PBGC premium filing (if applicable)
- Annual contribution range calculations
- Actuarial valuation report
- AFTAP (funded status) certification
- Participant statements and required disclosures
- Responses to routine email or phone questions
Termination fees:
Ending a Defined Benefit or Cash Balance Plan requires a separate, multi-step process with additional actuarial work, so termination fees are typically charged in addition to regular administration costs.
Amendments:
A modest fee may apply when updating plan provisions or modifying the benefit formula, which directly affects the contribution range.
Plan restatement:
Most small Defined Benefit Plans use an IRS pre-approved document. Approximately every six years, the IRS requires these documents to be updated and re-approved to reflect changes in pension law and regulations. Note that the restatement cycle is driven by the IRS’s timeline—not by how long your individual plan has been in place.
Frequently Asked Questions (FAQs)
Q: What is the maximum contribution I can make?
A: Contribution limits are based on actuarial calculations of benefit target, age, plan compensation, and years to retirement. For older business owners, this may reach hundreds of thousands of dollars. You can use our Defined Benefit & Cash Balance Plan Calculator to estimate your first year maximum contribution.
Q: How much can I accumulate in a Defined Benefit Plan?
A: Each plan participant has a "lifetime limit" that depends on the following variables at plan termination: age, plan compensation, years in the plan, years in the business. You can use our Defined Benefit & Cash Balance Plan Lifetime Limit calculator to estimate your limit.
Q: What compensation counts for plan calculations?
A: For the owner, it depends on the type of entity. This Defined Benefit Plan compensation article provides additional detail.
Q: When do I need to adopt and fund the plan?
You must adopt the plan by the business return filing deadline (including extensions) for the tax year you want the deduction. Funding for that plan year also needs to be made by your return filing date but no later than the September 15 in the year following the applicable year (e.g., September 15, 2026 for the 2025 plan/tax year).
Q: How long does it take to set up a Defined Benefit Plan?
A: Plan adoption can be done within a couple of weeks after you engage us and provide the necessary data. You also will need to allow time to setup the plan account with the custodian and fund the Plan.
Q: Do I need an attorney to draft my Plan?
A: No, not likely. Most small plans use an IRS preapproved template for the plan document. As long as the plan provisions stay within the specified parameters, no ERISA attorney or IRS approval is needed.
Q: Can I roll over my Defined Benefit Plan assets when I retire?
A: Yes. When you terminate the plan or retire, you usually can rollover Plan assets to an IRA or 401(k) Plan to continue tax-deferred growth — giving you control of your retirement funds.
Q: Can I use a Defined Benefit or Cash Balance Plan with a 401(k)?
A: Yes — pairing a Defined Benefit or Cash Balance Plan with a 401(k) Plan is a common strategy. This “DB / DC Combo” allows for much higher combined tax-deductible contributions than a single plan on its own.
Q: Do I need to include employees?
A: If you have eligible employees, you must cover them and satisfy nondiscrimination rules. If you’re a solo owner or only have owners and/or a spouse, it is simpler.
Q: Do I have to fund the same amount every year?
A: No, the Plan's actuary will recalibrate the contribution range every year. You have the flexibility to fund any amount within that range.
Q: What if the minimum contribution is too high?
A: You can amend the Plan to reduce the contribution up until you accrue a benefit for that year. Because the Plan's actuary must provide a 15-day notice and needs time to draft the amendment, generally, you will need to let them know no later than May 1 of the applicable year (e.g., May 1, 2026 to reduce the 2026 minimum contribution).
Q: What happens if I don’t make the required contribution?
A: You will face excise taxes on the unpaid contribution. If the Plan has employees, and especially if it is covered by the PBGC, there will be additional implications.
A: Contribution limits are based on actuarial calculations of benefit target, age, plan compensation, and years to retirement. For older business owners, this may reach hundreds of thousands of dollars. You can use our Defined Benefit & Cash Balance Plan Calculator to estimate your first year maximum contribution.
Q: How much can I accumulate in a Defined Benefit Plan?
A: Each plan participant has a "lifetime limit" that depends on the following variables at plan termination: age, plan compensation, years in the plan, years in the business. You can use our Defined Benefit & Cash Balance Plan Lifetime Limit calculator to estimate your limit.
Q: What compensation counts for plan calculations?
A: For the owner, it depends on the type of entity. This Defined Benefit Plan compensation article provides additional detail.
Q: When do I need to adopt and fund the plan?
You must adopt the plan by the business return filing deadline (including extensions) for the tax year you want the deduction. Funding for that plan year also needs to be made by your return filing date but no later than the September 15 in the year following the applicable year (e.g., September 15, 2026 for the 2025 plan/tax year).
Q: How long does it take to set up a Defined Benefit Plan?
A: Plan adoption can be done within a couple of weeks after you engage us and provide the necessary data. You also will need to allow time to setup the plan account with the custodian and fund the Plan.
Q: Do I need an attorney to draft my Plan?
A: No, not likely. Most small plans use an IRS preapproved template for the plan document. As long as the plan provisions stay within the specified parameters, no ERISA attorney or IRS approval is needed.
Q: Can I roll over my Defined Benefit Plan assets when I retire?
A: Yes. When you terminate the plan or retire, you usually can rollover Plan assets to an IRA or 401(k) Plan to continue tax-deferred growth — giving you control of your retirement funds.
Q: Can I use a Defined Benefit or Cash Balance Plan with a 401(k)?
A: Yes — pairing a Defined Benefit or Cash Balance Plan with a 401(k) Plan is a common strategy. This “DB / DC Combo” allows for much higher combined tax-deductible contributions than a single plan on its own.
Q: Do I need to include employees?
A: If you have eligible employees, you must cover them and satisfy nondiscrimination rules. If you’re a solo owner or only have owners and/or a spouse, it is simpler.
Q: Do I have to fund the same amount every year?
A: No, the Plan's actuary will recalibrate the contribution range every year. You have the flexibility to fund any amount within that range.
Q: What if the minimum contribution is too high?
A: You can amend the Plan to reduce the contribution up until you accrue a benefit for that year. Because the Plan's actuary must provide a 15-day notice and needs time to draft the amendment, generally, you will need to let them know no later than May 1 of the applicable year (e.g., May 1, 2026 to reduce the 2026 minimum contribution).
Q: What happens if I don’t make the required contribution?
A: You will face excise taxes on the unpaid contribution. If the Plan has employees, and especially if it is covered by the PBGC, there will be additional implications.
Next Steps / How We Can Help
Setting up a Defined Benefit or Cash Balance Plan is a big financial decision, so the right partner matters.
At Saber Pension, we specialize exclusively in owner-only and owner-spouse plans, which means every recommendation is tailored to the unique needs of small, closely held businesses.
Here’s what sets us apart:
Expert Guidance From the Actuary — Not a Call Center
When you work with Saber, you work directly with the founder and actuary, not an account manager, junior analyst, or rotating call-center rep. You get clear explanations, accurate calculations, and experienced judgment — without the layers.
Deep Specialization in High-Contribution Plans
We don’t sell investments, insurance, or add-on products. We focus 100% on Defined Benefit and Cash Balance Plans for owner-only businesses, allowing us to design plans that maximize deductible contributions while staying compliant and sustainable.
Strategic, Customized Plan Design
Each plan is built around your goals — cash flow, tax strategy, retirement targets, and whether a spouse will participate.
Unmatched Service & Responsiveness
Because you work direclty with the founder, who is an actuary, you get:
All-Inclusive, Transparent Fees
Flat, predictable fees. No asset-based charges. No long menu of potential add-ons. Just actuarial expertise and ongoing support.
Implementation Made Easy
If the plan is a good fit, we handle:
You focus on your business; we handle the Plan.
At Saber Pension, we specialize exclusively in owner-only and owner-spouse plans, which means every recommendation is tailored to the unique needs of small, closely held businesses.
Here’s what sets us apart:
Expert Guidance From the Actuary — Not a Call Center
When you work with Saber, you work directly with the founder and actuary, not an account manager, junior analyst, or rotating call-center rep. You get clear explanations, accurate calculations, and experienced judgment — without the layers.
Deep Specialization in High-Contribution Plans
We don’t sell investments, insurance, or add-on products. We focus 100% on Defined Benefit and Cash Balance Plans for owner-only businesses, allowing us to design plans that maximize deductible contributions while staying compliant and sustainable.
Strategic, Customized Plan Design
Each plan is built around your goals — cash flow, tax strategy, retirement targets, and whether a spouse will participate.
Unmatched Service & Responsiveness
Because you work direclty with the founder, who is an actuary, you get:
- Fast responses
- Clear answers
- Proactive guidance
- No handoffs or confusion
All-Inclusive, Transparent Fees
Flat, predictable fees. No asset-based charges. No long menu of potential add-ons. Just actuarial expertise and ongoing support.
Implementation Made Easy
If the plan is a good fit, we handle:
- Plan design
- Drafting all required plan documents
- Contribution ranges
- Coordination with your CPA
- Funding timing
- Annual administration and all required filings
You focus on your business; we handle the Plan.
Take the Next Step
A well-designed Defined Benefit or Cash Balance Plan can unlock substantial retirement savings, maximize tax deductions, and secure long-term wealth.
At Saber Pension, we guide owners every step of the way, from initial design through ongoing administration, ensuring you capture the full benefit of these high-contribution plans.
Book a consultation today and see how much you could contribute this year. With our guidance, you’ll have a plan that’s strategic, compliant, and tailored to you — and the confidence that comes from working directly with a seasoned actuary.
At Saber Pension, we guide owners every step of the way, from initial design through ongoing administration, ensuring you capture the full benefit of these high-contribution plans.
Book a consultation today and see how much you could contribute this year. With our guidance, you’ll have a plan that’s strategic, compliant, and tailored to you — and the confidence that comes from working directly with a seasoned actuary.
