A defined benefit (DB) or cash balance plan is one of the most powerful retirement and tax-planning tools available to successful business owners and professionals. With that power comes responsibility: these plans require proactive communication, precise information, and timely action to remain compliant and effective.
At Emparion, our role is to guide you through the complexities so your plan continues to work as intended. The following do’s and don’ts outline the most important best practices for managing your defined benefit plan.
The Do’s: Best Practices for Long-Term Success
Do communicate changes immediately
Please notify us as soon as you anticipate—or experience—any material change in your business or personal situation. Early communication allows us to evaluate the impact and adjust your plan proactively. Examples include:
- Acquiring a new business or obtaining ownership in another company
- Hiring additional staff, including a spouse or other family members
- Selling or preparing to sell your business
- Changes in liquidity or desired contribution levels
- Taking another job or participating in another employer’s retirement plan
Even changes that seem minor can significantly affect plan design, required contributions, or compliance testing.
Do confirm with us before funding your plan
Always confirm contribution amounts and timing with Emparion before funding your retirement plan. This ensures contributions are accurate, optimized, and aligned with your overall tax strategy.
Funding your plan without first confirming details with Emparion can create administrative and tax complications.
Do plan on having your plan open for at least a few years
Defined benefit plans are viewed by the IRS as permanent, ongoing retirement programs, not one-time tax shelters. When you adopt a defined benefit plan, you’re generally representing that the plan is intended to be maintained and operated as a continuing employee benefit arrangement. That’s why plan documents and administration assume recurring annual funding, required actuarial certifications, and ongoing compliance testing.
As a practical matter, sponsors should be prepared to keep a defined benefit plan open for at least a few years, assuming the business can support the contributions. There isn’t a single hard “minimum number of years” rule that applies in every situation, but the key standard is whether the plan was adopted with a bona fide intent to provide retirement benefits on a continuing basis.
Do coordinate with your CPA or tax advisor
If you work with a CPA or tax advisor, involve them in compensation and tax-structuring decisions. Collaboration between your advisory team helps avoid surprises and ensures your retirement plan integrates smoothly with your broader tax picture.
Do read and follow our communications carefully
Our emails and requests often include time-sensitive instructions tied to compliance and funding requirements. Reading them thoroughly and following directions explicitly helps keep your plan on track.
Do provide precise and confirmed information
Each year, we request specific data related to compensation, ownership, and employment. Providing exact, confirmed information—rather than estimates—allows us to administer your plan accurately and compliantly.
Inaccurate data can result in incorrect calculations and potential compliance issues. Always provide verified, exact information.
Do maintain a conservative investment approach
Defined benefit plans should invest conservatively, aiming for stable, long-term returns around a 5% interest crediting rate. Risky investments can cause losses and underfunding, while conservative strategies reduce volatility and keep contributions predictable.
Investment strategies should match the plan’s interest crediting rate to align asset growth. Aggressive investing risks inaccessible surpluses; lagging returns may require higher contributions. A conservative, diversified approach supports stable, long-term plan management.
Use EMPARION PLANS on
*Emparion is not affiliated with, endorsed by, or sponsored by these institutions.*
The Don’ts: Common Pitfalls to Avoid
Don’t forget that contributions are mandatory
Minimum defined benefit plan contributions are mandatory under IRS rules. Each year, the actuary determines the required minimum based on promised benefits, participant demographics, and investment experience. Contributing less than this amount makes the plan underfunded, risking excise taxes, required corrections, and extra scrutiny. Once the plan is established, you must fund it to at least the minimum each year.
Plan cash flow around the minimum contribution and communicate early if your business has a down year. Design changes—such as adjusting benefit levels or assumptions—can affect future years, but not the current funding requirement. Treat the minimum as a non-negotiable annual expense, confirm the funding range early, and contribute on time to avoid penalties and compliance issues.
Don’t file your tax return before making contributions
Filing early without completing required contributions may limit deductions or create corrective work.
Don’t forget key deadlines
Staying on top of defined benefit plan deadlines is crucial, as DB plans are tightly regulated and time-sensitive. Missing deadlines for contributions, certifications, notices, or filings can result in penalties, extra work, and unwanted IRS or Department of Labor scrutiny. Deadlines also determine tax deduction timing—missing the contribution window may forfeit or delay that year’s deduction. In short, promptness ensures compliance and protects cash flow.
Deadlines keep plan funding and paperwork accurate throughout the year. Actuarial valuations rely on timely census, compensation, ownership, and payroll data—delays can cause rushed calculations or funding surprises. Late filings can mean higher costs, amended returns, or correction programs. Proactively tracking deadlines ensures predictable contributions, avoids penalties, and keeps the plan running smoothly.
Don’t hesitate to ask questions
If something is unclear or if concerns arise, reach out to our team promptly. Ongoing communication is key to successful plan management.
Don’t overlook our educational resources
Our YouTube channel, articles, webinars and FAQ page are valuable tools designed to help you stay informed and confident in managing your plan. While these resources are a great starting point, our team is always available to address questions specific to your personal situation.
Is a Cash Balance or Defined Benefit Plan Right For You?
Final Thoughts
A defined benefit plan is not a “set it and forget it” strategy—it thrives on communication, precision, and partnership. By following these do’s and don’ts and staying engaged with the Emparion team, you can maximize the benefits of your plan while minimizing risk and administrative burden.
Our team is here to guide you every step of the way and ensure your plan continues to support your long-term financial and retirement goals.
