Strategies to Increase or Decrease Your Defined Benefit Plan Funding Range

Each year our clients must complete a funding form so our actuaries can provide you with a funding range. This range will include a minimum, maximum, and recommended funding amount.

While we always encourage clients to fund at the recommended level, each client has the ability to overfund or underfund based on an IRS tolerable amount. This range should give you considerable flexibility.

But what happens if the range looks too high or too low? There are a few items that you should consider to make sure that your range properly is calculated.

Here are several items you should consider if you are looking to get your funding range higher:

1. Adding spouse. Do you have your spouse on payroll? Assuming your spouse works for the business, if they are on payroll, you can give them a contribution.
2. Increasing W2. Is your W2 wage too low? Consider amending your W2 to get it higher. You can consider a W2 as high as $360,000 for a group plan and generally $290,000 for a solo plan.
3. Plan amendments. Does your funding range consider any plan amendments that were made for 2025? For example, your plan might have been amended to allow a pay credit equivalent to 200% of your W2?
4. Lower current year funding. Consider funding 25% of your W2 into your 401(k) profit sharing and then 6% into the defined benefit plan. This will free up future funding.
5. Include health insurance on W2. Was health insurance included as compensation? If your W2 includes health insurance, you may be able to increase your compensation as a result.

Here are several items you should consider if you are looking to get your funding range lower:

1. Lower W2 compensation. Is your W2 wage too high? Consider amending your W2 to get it lower. Because plan contributions are largely driven by compensation, this will typically decrease your contribution.
2. Work less than 1,000 hours. Did you work 1,000 hours during the year? If you worked less than 1,000 hours, you would likely have not earned a benefit for the year. As a result, this can likely substantially reduce the minimum funding amount.
3. Skip 401(k) profit-sharing contributions. The 401(k) employer profit-sharing contribution is discretionary each year. So this would be a good year to skip the profit sharing contribution.
4. Skip 401(k) deferral contributions. The 401(k) deferral is voluntary, it is possible you have already made this contribution for 2025. But if you are a sole proprietor or partnership then this could also be a contribution that you skip this year.
5. Delay contributions. You have until September 15th to make the full cash balance contribution before the IRS would consider the plan deficient. Filling an extension would give you more time to fund the plan, and still take the deduction on your 2025 tax return.
6. Plan amendment. Did you amend the plan to reduce the contribution percentage? It is possible that we did not consider your amendment when we ran your funding range.

Final thoughts

At the end of the day, even though defined benefit plan contributions are mandatory. You do have the ability to control your contribution level. The solutions provided above will give you a starting point for some changes you can make.

You may discover that your funding range can be more flexible than you thought. But just be careful. Ensure you have plenty of time left in the year to make specific changes affecting your funding range.