What does a CPA file and check?

A defined benefit plan with employees files Form 5500 each year, or the short Form 5500-SF if it qualifies, with Schedule SB signed by an enrolled actuary. A one-participant plan files Form 5500-EZ when the instructions require it. Form 5500 is due by the last day of the 7th calendar month after the plan year ends.

A one-time extension of up to 2½ months is available by filing Form 5558 on or before the normal due date. A plan the PBGC covers also makes its premium filing with the PBGC. A professional service employer’s plan that has never had more than 25 active participants at any time after September 2, 1974 is not covered, and neither is a plan maintained only for substantial owners.

Two dates apply. The minimum required contribution for a calendar 2026 plan year is due September 15, 2027, eight and a half months after the plan year ends, under section 430(j)(1) of the tax code. The tax deduction is allowed if the business pays by its return due date, including extensions, under section 404(a)(6).

For a calendar-year S corporation or partnership on extension, both dates fall on September 15, 2027. For a sole proprietor or a C corporation on extension, the deduction date is October 15, 2027, after the funding date. A late minimum contribution draws an excise tax of 10 percent under section 4971, and 100 percent if the amount stays unpaid, even when the deduction itself is still on time.

The full answer: When is the deadline to start?

A C corporation deducts the contribution on Form 1120, and an S corporation deducts it on Form 1120-S. A partnership reports it on Form 1065 and passes each partner’s own contribution through on Schedule K-1, box 13, code R, for the partner to deduct personally. A sole proprietor deducts the owner’s own contribution as an adjustment to income.

Earned income figured after the plan deduction makes the calculation circular, and the actuary solves it. Check the line numbers against the current year’s Publication 560 and form instructions before you file.

The full answer: How much tax will I save?

For a single-employer defined benefit plan, the deductible amount is the greater of the plan’s funding target plus its target normal cost plus a cushion, less plan assets, or the minimum required contribution under section 430. The cushion is why the maximum deductible amount can sit far above the minimum. An actuary figures both.

A contribution above the deductible amount draws an excise tax of 10 percent of the nondeductible contributions, owed by the employer as of the close of its tax year.

When a defined benefit plan runs beside a 401(k) with overlapping participants, the combined deduction is capped at the greater of 25 percent of covered pay or the defined benefit minimum. Employer 401(k) contributions of up to 6 percent of pay are left out of the cap, and employee deferrals are never counted.

Above 6 percent of pay, only the excess counts. A 412(e)(3) plan counts as a defined benefit plan for this rule. The cap does not apply at all to a defined benefit plan the PBGC covers, but a professional service employer’s plan that has never had more than 25 active participants at any time after September 2, 1974 is not covered, and neither is a plan maintained only for substantial owners.

The full answer: Can I keep my 401(k) too?

Several sets of rules decide who the plan must cover and what each person must receive: minimum participation under section 401(a)(26), coverage under section 410(b), nondiscrimination under section 401(a)(4), usually met by testing the plans together with the gateway in the regulations, and the top-heavy rules in section 416. The table gives each test’s own figures.

No law sets a share of the contribution that staff will receive. The actuary’s tests on the client’s census decide the staff share.

The full answer: What do my employees get?

An enrolled actuary, licensed by the federal Joint Board for the Enrollment of Actuaries, values the plan each year, certifies the minimum and maximum contribution, and signs Schedule SB of the plan’s Form 5500. The deduction limit for a defined benefit plan must be figured by an actuary, and the IRS says so in Publication 560.

Schedule SB reports the funding target, the target normal cost, the minimum required contribution and the funding target attainment percentage. Ask for the signing actuary’s name and enrollment number before you rely on any figure the actuary produces.

Ask for the census the proposal used, the illustration with every assumption stated, the proposed plan document and adoption agreement, the trust or custodial agreement, the plan’s yearly cost in writing, a sample Schedule SB, and the name and enrollment number of the actuary who will sign. Read the plan document before the client signs it.

In the plan document, look for the vesting schedule, how the interest credit is set, whether in-service distributions or loans are allowed, and what happens to any surplus when the plan ends. Ask who files each form, who signs each one, and whether the client keeps its own custodian.

The full answer: How do I start a plan?

A careful CPA declines when profit swings from year to year, when cash is thin, when the cost of covering staff outweighs the owner’s tax saving, when a sale or wind-down is likely soon, or when the owner wants a single year’s deduction or believes the plan erases tax rather than deferring it.

A defined benefit plan defers tax. Contributions are deducted now and taxed as ordinary income when paid out, and a distribution before age 59½ carries a 10 percent additional tax unless an exception applies.

The IRS lists the defined benefit plan as the most costly and the most administratively complex type of plan. The contribution is mandatory each year within the actuary’s range, and an unpaid minimum is taxed at 10 percent, then 100 percent. The employer bears the investment risk, so a shortfall raises future contributions.

Benefits do not depend on how the plan’s investments do. The money is locked until age 59½, separation or plan termination, with a 10 percent additional tax on early distributions. Staff must be covered and credited under federal tests. Fees for the actuary, the administrator and the filings are due every year.

The full answer: What are the risks?

Show the client the minimum required contribution in a weak year, not the maximum in a good one. The minimum is mandatory every year the plan exists, and an unpaid minimum is taxed at 10 percent, then 100 percent. If the client cannot carry the minimum in the weak case, a plan with optional contributions fits better.

The law gives a bad year some room. A funding shortfall is paid off in level installments over 15 plan years. A waiver of the minimum needs a temporary substantial business hardship, is granted for no more than 3 of any 15 consecutive plan years, and is repaid over 5 plan years. An amendment that cuts future benefits needs written notice at least 45 days ahead, or 15 days for a plan with fewer than 100 participants.