Defined Benefit Plans: What Happens When You Don’t Fund or File for a Year?

Defined benefit and cash balance plans are excellent retirement structures. But what happens if you don’t fund or file for a year?

Clients should remember that defined benefit plans are “permanent” plans. These plans require annual funding, IRS forms, and actuarial certification—skipping a year is not allowed.

Some believe these plans can be funded at any time, but this misunderstanding can lead to costly penalties and IRS notices. We’ll discuss this issue and offer solutions if it happens to you.

Defined Benefit Plans and the “Missing Year” Problem

Defined benefit plans demand yearly compliance: funding, actuarial work, and reporting. Skipping requirements usually causes bigger problems.

If you missed a year, you will likely have the following issues:

• You must file Form 5500 by July 31st (or October 15th with an extension). If filed late, penalties are $250 per day, capped at $150,000 per plan year. Thankfully, relief is available in many situations.
• Your actuary sign off is required for each plan year. This is due 8 1/2 months after year-end.
• You may have missed a required minimum contribution. This is also due 8 1/2 months after year-end. If missed, Form 5330 will have to be filed and you’ll owe an approximate 10% penalty on the underfunded amount.
• Because plan funding is impacted by prior years, you can’t fund a plan for the current year unless back year filings are completed.
• Late fees and penalties begin around $2,000 and can be as high as $50,000 depending on your minimum contribution.

Missed-year issues are fixable but often require multiple catch-up filings and unplanned professional time.

Form 5500 Late Filing Penalties and How to Obtain Relief

Form 5500 reports yearly plan operations and is required when assets exceed $250,000. The $250,000 threshold is combined with a 401(k) plan.

Late filing Form 5500 can result in penalties from the IRS and Department of Labor. The IRS charges $250 per day (up to $150,000 per return) for late Form 5500 filings. The DOL may also impose substantial daily penalties, adjusted for inflation.

The main relief for late Form 5500s is the DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP), which allows voluntary catch-up filings and reduced penalties if you act before being contacted.

You can reduce penalties by acting before the DOL contacts you. The DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP) allows overdue reports to be filed with reduced civil penalties. The IRS also offers penalty relief for late Form 5500 filers who meet DFVCP requirements and file any missing Form 8955-SSA.

Your administrator should be able to complete and file these returns. But there will usually be high fees associated with such filings.

The Funding Deadline and Why It Still Matters After Year-End

Funding isn’t flexible. For most defined benefit plans, minimum contributions are due 8.5 months after the plan year ends. Missed deadlines cause penalties.

Many confuse funding and deduction deadlines. Deduction ties to the tax return deadline, but funding has separate rules and consequences.

First, determine the year’s minimum required contribution. Your actuary calculates this, forming the basis for correction.

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Funding Deficiencies, Form 5330, and the 10% Excise Tax

When a plan has a minimum funding shortfall for the year, it creates a funding deficiency. An excise tax can apply under the Internal Revenue Code. In practical terms, sponsors often experience this as an approximately 10% penalty on the unpaid minimum.

When the excise tax applies, it is reported on Form 5330. The Form 5330 filing deadline for this excise tax is generally the 15th day of the 10th month after the plan year ends. Late filing can create additional exposure and interest.

Extensions can be requested for filing Form 5330, but payment timing is not automatically extended. This is why waiting can be expensive even when you plan to file later. The cleanest path is to compute the deficiency quickly and pay what is due.

If multiple years are missed, the corrections can stack. In that situation, sequencing and documentation matter just as much as payment.

Administrative Reality: Extra Professional Fees and a Practical Action Plan

You should expect additional fees for penalty relief processing. DFVCP submissions require careful sequencing, proper signatures, and proper electronic filing. Form 5330 work requires excise tax analysis and supporting documentation.

These extra professional fees are not optional in most cases. The administrator is taking on additional time, risk, and responsibility. Clients should plan for catch-up costs alongside any penalties. Most administrators will have fees starting around $2,000.

A practical approach is to treat the cleanup as a mini project with a checklist. Here is a concise list of the steps involved:

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• Confirm which plan years are missing funding, filings, or both.
• Gather payroll, census, ownership, and prior valuation reports for each missed year.
• Have the actuary quantify the minimum required contribution and any deficiency.
• File delinquent Forms 5500 under DFVCP when eligible for reduced penalties.
• Evaluate whether Form 5330 is required for any excise tax on a deficiency.
• Pay contributions and any excise taxes as soon as amounts are known.
• Create a forward calendar for contributions, extensions, and annual filings.

Steps to Fix the Problem

Step 1 – Confirm Engagement & Provide Initial Details

You must confirm the following:

1. Do you want Emparion to prepare and submit the Penalty Relief Program filings for your plan(s)?
   • If yes, please list the applicable plan name(s).
2. Have you filed an extension for your 2025 business tax return?
3. Have you received any IRS penalty notices related to a delinquent Form 5500-EZ?
4. Do you understand that moving forward will require payment of the invoice outlined below?

Step 2 – Invoice & Payment Required to Proceed

To begin work, we will issue an invoice including:

• Prior years annual administration fees
• Current annual administration fees
• Late filing relief program fee

Step 3 – Submit Required Information

You will need to provide:

• 2024 Annual Funding Form
• Completed Delinquent Filing Collection Form (attached)
  • Instructions are included within the file
• Supporting documentation:
  • Custodian account statements

Step 4 – Emparion Preparation & Review

Once all items are received, our team will:

• Prepare 2024 funding calculations (If applicable)
• Complete actuarial valuation 
• Prepare Form 5500-EZ
• Prepare Form 5330 (if required)

Timing will depend on the number of delinquent filings and completeness of submitted data.

Step 5 – Submission of Delinquent Filings

We will submit the late Form 5500-EZ filings under the IRS Penalty Relief Program.

Step 6 – Resume 2025 Annual Administration

• Submit your 2025 Annual Funding Form
• We will calculate your 2025 funding range
• This step returns the plan to ongoing compliance

Step 7 – Optional: Plan Termination Discussion

If you are considering terminating the plan, we can review timing, funding requirements, and next steps once compliance is restored.

Please let us know once you’ve reviewed the above and we can move forward accordingly. If you have any questions, we’re happy to walk through this with you.

Bottom Line

A defined benefit plan cannot be paused without consequences. If you do not fund or file for a year, penalties and corrective filings can follow. The longer you wait, the more expensive the cleanup tends to become.

Your best play is usually fast triage and structured correction. DFVCP is often the central tool for Form 5500 penalty relief. Minimum funding rules and possible Form 5330 excise taxes must be evaluated in parallel.

Finally, budget for added administrator fees when you are behind. Catch-up work is heavier than routine administration. Paying for careful corrections is usually cheaper than compounding mistakes.