What do my employees get?

Not all of them, but enough to pass federal tests. Under section 401(a)(26), a defined benefit plan must benefit at least the lesser of 50 employees or the greater of 40 percent of all employees or 2 employees, on each day of the plan year. Section 410(b) adds a coverage test, and section 401(a)(4) bars favoring highly paid employees.

A highly compensated employee is one the tax code defines by ownership or pay; for 2026 the pay threshold is $160,000 (IRS Notice 2025-67). A plan may also leave out an employee until the later of age 21 or 1 year of service, though it may use a shorter wait. Certain other employees the law calls excludable may be left out of the count.

No law sets a fixed share. When a cash balance plan is tested with a 401(k) profit sharing plan, each employee who is not highly compensated must receive at least the lesser of one third of the highest owner’s rate or 5 percent of pay. The exact staff share comes only from the actuary’s test on your census.

The regulation calls that floor the minimum aggregate allocation gateway. The 5 percent alternative applies only while the highest rate is 25 percent of pay or less; above that, the floor rises. A plan that gives each such employee at least 7½ percent of pay is treated as passing. No document sets a ratio of owner dollars to staff dollars; the ratio falls out of the tests.

Within limits, yes. Owners can receive far larger dollar credits than staff, because the tests compare benefits as a percentage of pay and let older participants accrue more. The plan cannot skip the gateway minimum for staff, cannot fail the coverage tests, and cannot give highly compensated employees a better rate than the tests allow.

Older owners accrue more because a benefit payable at retirement costs more to fund when retirement is closer. Running the plan beside a 401(k) changes the testing and the deduction rules, which are set out on the page about keeping your 401(k).

A defined benefit plan is top-heavy when key employees hold more than 60 percent of the present value of all accrued benefits. A plan built around its owners is often top-heavy, and that is legal. A top-heavy plan must give each employee who is not a key employee a minimum benefit, and it must use faster vesting.

The minimum benefit is the lesser of 2 percent of average pay for each year of service or 20 percent of average pay. Key employees are generally owners and officers; for 2026 the pay threshold for an officer is $235,000 (IRS Notice 2025-67).

Vesting depends on the plan type. A cash balance plan must fully vest a participant after 3 years of service. A traditional defined benefit plan may use a 5-year cliff or a schedule that vests 20 percent at 3 years and 100 percent at 7. A top-heavy plan must use a 3-year cliff or a 6-year graded schedule.

The cash balance rule is a ceiling on the wait, not a required wait, so a plan may vest staff sooner. The statute calls a cash balance plan an applicable defined benefit plan. Vesting covers the benefit the employer paid for; an employee who leaves before vesting forfeits the part not yet vested.

An employee who leaves before vesting forfeits the unvested part. The forfeited amount stays in the plan trust and reduces the employer’s future contributions, as Treasury Regulation 1.401-7 requires. No money is paid to the owners. An employee who leaves after vesting keeps the vested benefit.

A vested benefit worth more than $7,000 cannot be paid out right away without the former employee’s consent. How a vested benefit can be paid or rolled over is set out on the page about taking money out.

No. The employer funds a defined benefit plan. Employees do not pay into it, and an employee who meets the plan’s entry rules is in the plan without signing up. The staff’s credits are a cost to the employer, whether or not those employees also save in a 401(k).

In a cash balance plan, each employee sees a hypothetical account that grows by a pay credit and an interest credit each year, both paid for by the employer. How those credits work is explained on the page about cash balance plans.

A plan with employees must give each participant a summary plan description that explains the plan in plain words. Before an amendment that significantly cuts future benefit credits, the plan must send written notice at least 45 days ahead, or 15 days ahead for a plan with fewer than 100 participants who have an accrued benefit.

The summary plan description names the plan administrator and the trustees and says how the plan is funded. Federal pension law requires it to be written so that the average participant can understand it.