For years, the narrative was that defined benefit (DB) pension plans were on their way out. Termination was seen as the default path. But according to Mercer’s 2025 CFO Survey, the tide is turning. Half of plan sponsors now intend to keep their DB plans, up significantly from just 28% in 2021. With plans reaching a stronger funded status, 104.1% for the 100 largest corporate DB plans as of March 31, new opportunities are emerging for business owners who want to maximize tax savings while building retirement wealth.

Surpluses Open the Door to New Strategies

An important shift is happening: many plans are now overfunded, creating pension surpluses that sponsors are strategically unlocking. Instead of shutting down plans, organizations are finding creative ways to use these surpluses, including:

• Shifting defined contribution (DC) contributions into a DB plan
• Funding retiree medical benefits with surplus assets
• Implementing partial transactions to access surplus funds while keeping benefits intact

For high earners, this means there are more ways than ever to design a plan that goes beyond compliance, one that captures tax efficiencies and long-term wealth-building opportunities.

The Rise of Hybrid and Cash Balance Plans

Another trend highlighted in the Mercer survey is the growing use of hybrid pension plan designs, particularly cash balance plans. Nearly 38% of respondents have already moved to a hybrid design, up from 32% in 2023.

For business owners and professionals with high incomes, cash balance plans can be particularly powerful. They provide predictable benefits while offering far higher contribution limits than traditional retirement accounts like IRAs or 401(k)s. This structure allows owners to:

• Reduce taxable income through substantial deductible contributions
• Accumulate retirement savings faster than with defined contribution plans alone
• Mitigate investment and interest rate risks traditionally associated with pensions

Managing Risk Without Termination

Investment risk and interest rate volatility remain the top reasons sponsors terminated plans in the past. But more than 70% of organizations are now pursuing de-risking strategies, including lump-sum payouts and annuity purchases. Many are also shifting assets into fixed income for greater stability.

For high-income business owners, the message is clear: you don’t need to abandon a DB plan to manage risk. Strategic design, combined with modern de-risking tools, allows you to keep the tax advantages while reducing exposure to market swings.

Why This Matters for High Earners

If you’re a business owner or professional with consistently high income, the defined benefit landscape has never been more favorable. With funded status at historic highs and sponsors embracing innovation, the opportunity to use DB and cash balance plans as tax-saving, wealth-building vehicles is stronger than ever.

Rather than defaulting to traditional 401(k) limits, a well-structured DB or hybrid plan can allow you to contribute multiple times more each year, significantly reducing taxable income while accelerating retirement savings.

The Mirador Perspective

At Mirador, we work with high earners who want more than cookie-cutter retirement plans. Our focus is on strategic plan design that delivers:

• Higher owner contributions
• Significant tax savings
• Long-term flexibility to adapt as your business evolves

The new era of defined benefit planning is about choice and control. With the right structure, you can safeguard wealth today and secure retirement for tomorrow.

Ready to explore what a modern DB or cash balance plan can do for you?

Reach out to Mike, Alison, and Rachel to learn more about how we can design a retirement strategy that helps you keep more of what you earn.

For many employers, managing a retirement plan is one of the most important fiduciary responsibilities they take on. Among the most overlooked compliance risks is the timeliness of 401(k) contributions.

It is not just about following the rules. Delays in funding employee deferrals can impact participant outcomes, increase liability, and trigger costly corrections. Whether you are running a newly implemented plan or managing an established one, understanding the timing requirements and how to meet them is essential.

Why Timely Contributions Matter

Delayed contributions are a fiduciary breach

When employees elect to defer part of their wages into a retirement plan, those dollars must be deposited into the plan promptly. Once withheld from pay, these funds are no longer considered company assets. Failing to deposit them quickly violates ERISA (Employee Retirement Income Security Act) rules and can be seen as a misuse of employee money.

Missed deadlines trigger financial consequences

Late contributions often require plan sponsors to correct the error by calculating and depositing “lost earnings” for each participant. In most cases, the employer must also file a Form 5330 and pay a 15 percent excise tax on the late amounts.

These corrections are time-consuming, complex, and reportable to the IRS and Department of Labor.

What the IRS Requires

The 7-business-day rule for small plans

For plans with fewer than 100 participants, the IRS offers a clear safe harbor: if you deposit deferrals within seven business days of payroll, the contributions are deemed timely.

This rule provides clarity for small business owners and payroll teams, but it also sets a firm limit. Missing this window puts the plan out of compliance.

Large plans must act faster

For plans with 100 or more participants, the IRS applies a more subjective standard: contributions must be deposited “as soon as administratively feasible.”

In practice, this often means within two or three business days. The IRS may examine your payroll capabilities to determine what is feasible based on your internal processes. If you can move money quickly, they expect you to.

“If you are able to pay your employees on Friday, you should be able to also take those funds and put them into the 401(k) that same Friday or the following Monday.”

What Happens If You’re Late?

Late contributions do not go unnoticed. Plan sponsors must take the following steps to resolve the issue:

1. Identify affected payrolls

Every missed deadline must be tracked and documented. This is critical for both internal controls and regulatory reporting.

2. Calculate lost earnings

You must calculate the investment gains employees would have earned if their contributions had been deposited on time. These amounts must then be added to their accounts at the employer’s expense.

3. File and pay excise taxes

In most cases, the employer must file Form 5330 and pay a 15 percent excise tax on the late amounts. This is in addition to the lost earnings that must be funded into the plan.

4. Disclose and report

If the error is significant or systemic, the Department of Labor may require additional disclosures. The issue could also be flagged in the plan’s annual audit or Form 5500 filing.

Common Causes of Late Contributions

Understanding why late contributions happen can help prevent them:

• Manual payroll processes: Plans that rely on manual file uploads or batch processing are more likely to miss deadlines.
• Lack of internal controls: Without clear responsibility or oversight, contributions can fall through the cracks.
• High staff turnover: Changes in HR or payroll roles often result in missed steps or knowledge gaps.
• Unfamiliarity with rules: Many new plan sponsors are simply unaware of how strict the deadlines are.

These are all preventable with the right systems and support in place.

How to Stay Compliant

Set clear internal procedures

Build a routine around payroll and 401(k) deposits. Assign roles and establish backup procedures so contributions are never delayed due to vacations or staffing changes.

Automate whenever possible

Using automated payroll integration with your 401(k) provider reduces the chance of delay and improves accuracy.

Monitor your timeline

Keep a log of when contributions are withheld and when they are deposited. Regularly audit this timeline to ensure your process is consistent and within the required timeframe.

Partner with a proactive TPA

A good Third-Party Administrator (TPA) will not just manage your compliance after the fact. They will help you establish the right processes up front, monitor for late deposits, and guide you through corrections if needed.

How Mirador Helps

At Mirador, we know that plan sponsors have a lot on their plate. That is why we design retirement plan processes that fit your business, not the other way around.

If a deadline is missed, we help quantify the correction and guide you through the next steps. But more importantly, we work with you proactively to help prevent errors in the first place.

Whether you are managing your first plan or your fiftieth, our team brings deep expertise, steady support, and a commitment to getting it right.

Final Thoughts

Timely 401(k) contributions are not just a compliance checkbox. They are a reflection of your commitment to your employees and your fiduciary responsibility.

Missing a deposit deadline can quickly become a costly and time-consuming problem, but it is one that is entirely avoidable with the right systems and support.

If you are unsure whether your current process meets the timing requirements, let’s talk. Mirador can help you evaluate your current procedures, implement improvements, and stay confidently compliant.

In many ways, he was. But years after finalizing his exit, and after wrapping up his retirement plan with Mirador, he reached back out. He wanted to stop by in person. It was the first time we’d ever met face-to-face.

Naturally, we were curious. Was something wrong?

He sat down, shared what he’d been up to in retirement, and then paused.
Then he said something that stuck with us:

“Mike, I just wanted to thank you.”

It wasn’t a generic gesture. He explained that by the time he retired, his defined benefit plan had nearly $2 million in it, almost equal to the amount he received from selling his business.

That amount wasn’t just savings. It was strategy. Without the defined benefit plan, half of that would’ve gone to taxes. The rest? He admitted he probably would’ve spent it. Instead, he had a secure retirement nest egg, and something left over for his kids.

He got choked up when he said it. We did too.

This is why Mirador exists. Not to fill out forms. Not to sell plans. But to create a meaningful, measurable impact in the lives of business owners.

What Is a Defined Benefit Plan?

A defined benefit plan is a qualified retirement plan that promises a fixed, pre-established benefit at retirement. It’s different from a 401(k) where employees contribute their own money. In a DB plan, the employer makes all the contributions, and those contributions are calculated based on the benefit amount targeted at retirement.

These plans allow for large, tax-deductible contributions, especially for older, high-earning business owners nearing retirement.

Is a Cash Balance Plan the Same?

Not exactly. A cash balance plan is a type of defined benefit plan, but with some unique features. Instead of promising a monthly payout, it defines the benefit as a hypothetical account balance. This format makes it feel more like a 401(k), even though it’s still technically a pension plan.

Both plan types offer significant tax advantages, but the cash balance model tends to be more flexible and easier for participants to understand.

How Do Defined Benefit Plans Work with 401(k)s?

Defined benefit and 401(k) plans are not either-or choices. In fact, they often work best together.

We frequently design combo plans, pairing a DB or cash balance plan with a 401(k)/profit sharing plan. This allows business owners to maximize annual contributions and optimize tax deductions, while still providing value to employees.

In Dr. Lee’s case, we used this combination strategy to help him double the total retirement assets he walked away with. Half of that was funded by tax deductions alone.

Who Can Participate in a Defined Benefit or Cash Balance Plan?

These plans are ideal for:

• Business owners in their 40s, 50s, or 60s with high, stable income
• Solo entrepreneurs or small partnerships
• Professional service businesses (doctors, attorneys, consultants)
• Owners who want to make large contributions quickly, especially if they’re catching up on retirement savings
  

While employees may also participate, DB plans must pass coverage and nondiscrimination testing to stay compliant. That’s where the role of the TPA is essential.

Learn More

To understand how compliance testing, controlled groups, and affiliated service groups can affect defined benefit plans, click here.

If you’re sponsoring a retirement plan, especially a 401(k), profit-sharing, or defined benefit plan, nondiscrimination testing isn’t optional. It’s a compliance requirement with real financial consequences for plan sponsors and owners who don’t pay attention.

Let’s explore what nondiscrimination testing is, why it exists, who it protects, and how smart plan design can help you pass, while still maximizing owner contributions.

What Is Nondiscrimination Testing?

Nondiscrimination testing (NDT) is a set of IRS-mandated compliance tests designed to ensure that retirement plans do not unfairly benefit highly compensated employees (HCEs) at the expense of rank-and-file employees.

It applies to:

• 401(k) and Safe Harbor plans
• Profit-sharing plans
• Defined benefit and cash balance plans
• Combination plans (e.g., DB/DC)

In short, if you’re offering retirement benefits, the IRS wants to ensure you’re not only enriching owners and top executives while leaving everyone else behind.

Why Was It Created?

Nondiscrimination testing exists to protect employees.

“It’s to make sure you’re not giving way too much money to your CEO and executives when compared to your staff,” says Alison Quesada, Partner at Mirador.

It ensures fairness and plan qualification. A plan that discriminates in favor of HCEs risks disqualification by the IRS, which can result in:

• Refunds of employee deferrals
• Required employer contributions
• Loss of tax-favored plan status
• Costly corrections or audits

Who Needs to Pay Attention to Nondiscrimination Testing?

NDT isn’t just the responsibility of your TPA, it affects:

• Business Owners: Because the structure of your contributions depends on passing these tests
• HR and Finance Leaders: Who handle compliance documentation and employee communication
• Advisors and CPAs: Who integrate retirement plan strategy into overall tax and compensation planning

If your plan includes both HCEs and rank-and-file employees (and most do), you’re subject to nondiscrimination testing.

Common Testing Areas

Here are the key tests most plans must pass annually:

ADP (Actual Deferral Percentage) Test

Compares how much HCEs and non-HCEs defer from their own pay into the 401(k).

ACP (Actual Contribution Percentage) Test

Compares employer matching and after-tax contributions between HCEs and non-HCEs.

Top-Heavy Testing

Determines whether key employees (e.g., owners, officers) hold more than 60% of total plan assets.

What Happens if You Fail?

Failing nondiscrimination testing can trigger:

• Refunds to HCEs, forcing owners and execs to pull money out of their accounts
• Additional employer contributions, to “rebalance” benefits to rank-and-file employees
• Penalties and potential loss of plan qualification if not corrected in time

The good news? These failures are often avoidable, with the right plan structure.

Smart Design: Combining Plans to Satisfy Compliance and Maximize Value

As Rachel Rosner explains in the video, one of the most powerful ways to pass NDT and support both owners and employees is by combining plan types:

“We call them DB/DC or CB/DC combination plans. So it’s a defined benefit plan paired with a 401(k) profit-sharing plan.”

How It Works:

• The defined benefit (DB) plan delivers large contributions for owners, designed around age, compensation, and years to retirement
• The 401(k) profit-sharing plan offers visible contributions for employees on familiar investment platforms like John Hancock or American Funds

This structure not only passes nondiscrimination testing, it also serves as:

• A tax strategy for owners
• A retention tool for employees
• A balanced benefit plan that satisfies IRS fairness rules

“While we say we set these plans up for the owners, it still is for the owners,” says Rosner. “But the employees get real value too.”

When business owners acquire or merge with another company, the headlines focus on valuation, synergies, and closing timelines. But quietly sitting in the background, often unnoticed until it’s too late, are legacy benefit plans, control group structures, and compliance traps that can derail your deal.

Retirement plans are consistently one of the most commonly overlooked elements in M&A transactions specifically, how control group and affiliated service group rules can create unexpected liability, compliance issues, and contribution obligations unless proactively addressed before the transaction closes.

Why Retirement Plans Must Be on the M&A Due Diligence List

“We work with successful business owners who acquire companies to grow, but they rarely think about how that impacts their existing retirement plan design.”

Buying or merging with another company may trigger IRS rules around control groups or affiliated service groups (ASGs). When that happens, your new business structure may require that all employees across both entities be tested together, and possibly receive contributions under your existing retirement plan.

If the acquired business has its own plan, things become even more complicated. There may be testing failures, required plan mergers, and transition rules to follow.

Understanding Control Groups in M&A

A control group exists when:

• You own 100% of your current business
• You acquire at least 80% of another business
  

These businesses are now considered one entity for retirement plan purposes, even if you operate them separately.

What it means:

• Employees in both companies must be included in nondiscrimination testing
• You may have to offer benefits to newly acquired employees
• If your current plan was designed for a lean staff, your contribution structure may need to change
  

Affiliated Service Groups: Less Ownership, Same Risks

An Affiliated Service Group doesn’t require 80% ownership. These groups are formed when:

• Two businesses work closely together to provide services
• Owners have overlapping management or operational control
• There’s a financial or service-based dependency between the entities

This can create a testing and compliance requirement even when the acquiring company owns less than 80% of the other.

Why Timing Matters

“We designed your plan for the life you had when we started, your structure, your staff, your ownership. If that changes, the plan needs to change too. But once you close the deal, your options become limited.”

Amendments can’t be retroactive. If the new company structure results in a failed nondiscrimination test, you may be required to fund employee contributions you hadn’t budgeted for. That’s why retirement plan review should happen before the transaction closes, not after.

M&A Compliance Checklist for Business Owners

Below is a checklist of what to review during any merger or acquisition:

Corporate and Operational Structure

• Ownership percentages post-transaction
• Whether common ownership triggers a Control Group or ASG
• Number of employees and employee classifications
  

Retirement Plan Considerations

• Whether the acquired company has an active plan
• Plan document availability and filing history (Form 5500)
• Testing compatibility and transition rules
• Whether a plan merger is advisable or necessary
  

Insurance and Risk Transfer

• Review or add Directors & Officers (D&O) coverage
• Errors & Omissions (E&O) policy alignment
• General liability, workers’ compensation, and commercial auto review
  

Employee Benefits

• Group health plan compatibility
• COBRA compliance transition
• Ancillary benefit obligations

Professionals You Should Notify (and Involve Early)

Too often, business owners loop in advisors after the deal closes. That’s too late for plan design. Here’s who should be at the table before the transaction is finalized:

• ERISA Attorney – for plan document review, compliance, and amendment timing
• Third Party Administrator (TPA) – for testing, filings, and plan design updates
• CPA – for tax implications of employer contributions and deduction strategy
• Wealth Advisor – to align plan changes with long-term retirement strategy
• Business Transaction Attorney – for deal structure, reps, and warranties related to benefit plans
• HR/Benefits Team or Consultant – for post-close onboarding and communication

Retirement Plans Aren’t a Footnote

If you’re acquiring or merging businesses and haven’t reviewed your retirement plan design, you’re missing a key element of due diligence. The IRS and DOL won’t give you a grace period because you were unaware.

Get ahead of it. Confirm whether control group or ASG rules apply. Test before you transact. Adjust your plan before it’s too late.