Defined Benefit vs Cash Balance: What’s the difference?

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For high-earning small business owners, retirement plans are often viewed as tax tools first and employee benefits second. When income is strong and taxes are painful, Defined Benefit and Cash Balance plans tend to rise to the top of the conversation.

They are often mentioned together and sometimes treated as interchangeable. They are not. While both are powerful, IRS-regulated pension plans, the structure, compliance obligations, and flexibility can differ in meaningful ways depending on your business, cash flow, and long-term goals.

Understanding those differences is critical before you commit.

What Is a Defined Benefit Plan?

A Defined Benefit plan is a traditional pension plan that promises a specific benefit at retirement. That benefit is defined upfront, usually as a lump sum or annuity, and the plan is funded annually based on actuarial calculations.

For owner-only or owner-heavy businesses, Defined Benefit plans are often used to maximize tax-deferred contributions in years of high income.

Key characteristics:

  • Benefits are defined first, contributions are calculated second
  • Annual contributions are required and must stay within actuarial ranges
  • Investment performance directly affects future contribution requirements
  • Heavier long-term funding obligation than other plan types

From a compliance standpoint, Defined Benefit plans are tightly regulated. Annual actuarial valuations are required, minimum funding rules apply, and Form 5500 filings must be completed accurately and on time. A TPA coordinates these requirements and ensures the plan stays aligned with IRS and Department of Labor rules.

What Is a Cash Balance Plan?

A Cash Balance plan is technically a type of Defined Benefit plan, but it functions very differently from the owner’s perspective.

Instead of promising a retirement benefit as an annuity, the plan defines benefits as a hypothetical account balance. Each year, the participant receives:

  • A pay credit, typically a percentage of compensation or a flat dollar amount
  • An interest credit, often tied to a fixed rate or a conservative index

To business owners, Cash Balance plans feel more familiar and easier to understand, even though they remain pension plans under the hood.

Key characteristics:

  • Benefits are expressed as an account balance, not an annuity
  • Contribution ranges are often more flexible year to year
  • Easier to pair with an existing 401(k) plan
  • Often more predictable and scalable for growing businesses

From a compliance perspective, Cash Balance plans still require annual actuarial work, funding discipline, and careful plan design. The difference is that the structure often allows owners more control over contribution targets without committing to the same long-term funding path as a traditional Defined Benefit plan.

Compliance Differences That Matter to Owners

For small business owners, the biggest differences are not theoretical. They show up in required contributions, cash flow pressure, and administrative oversight.

Contribution rigidityTraditional Defined Benefit plans tend to lock owners into tighter funding corridors. Cash Balance plans usually provide more room to adjust contributions within acceptable ranges.

Investment impactIn a Defined Benefit plan, higher-than-expected investment returns can reduce future deductible contributions. Cash Balance plans are typically designed with more conservative return assumptions, reducing this risk.

Employee impactBoth plans must pass nondiscrimination testing if employees are included. Plan design, compensation levels, and workforce demographics all matter. A TPA plays a critical role in structuring the plan so owner benefits remain efficient while staying compliant.

Exit and terminationBoth plans can be terminated, but the process requires careful coordination. Cash Balance plans are often easier to unwind cleanly when owners sell, retire, or change strategy.

Which Is Right for a Small Business Owner?

There is no universal answer. The right plan depends on:

  • Income consistency
  • Business maturity
  • Number and age of employees
  • Long-term ownership horizon
  • Appetite for funding commitments

Owners seeking maximum deductions and long-term pension-style planning may prefer a traditional Defined Benefit plan. Owners who want high deductions with more flexibility and clearer account visibility often lean toward Cash Balance plans.

What matters most is not the plan label, but the design, administration, and compliance execution behind it.

Why the Right TPA Matters

Both Defined Benefit and Cash Balance plans are complex. They require ongoing actuarial oversight, precise compliance work, and proactive communication with owners and advisors.

A strong TPA does more than calculate numbers. They help business owners understand the tradeoffs, plan for future years, and avoid costly compliance missteps that can undermine the very tax benefits the plan was designed to deliver.

For small business owners, the difference between these plans is not just structural. It is strategic.

Talk With Mirador Retirement Plans

Choosing between a Defined Benefit plan and a Cash Balance plan is not a surface-level decision. The right structure depends on your income, workforce, cash flow, and long-term exit plans.

Mirador Retirement Plans works with small business owners to design, administer, and maintain retirement plans that are built for compliance first and strategy second. As your TPA, we help ensure your plan stays aligned with IRS requirements while supporting the outcomes you care about most.

If you are considering a Defined Benefit or Cash Balance plan, or want to understand whether your current plan is still the right fit, contact Mirador Retirement Plans to start the conversation.

Case Study: Why Strategic Design is Essential for Defined Benefit Plans

Defined Benefit (DB) plans—and their hybrid cousins, Cash Balance plans—are among the most powerful retirement vehicles for business owners and high-income professionals. But they require thoughtful design and ongoing strategy to deliver long-term value. Without it, even well-intentioned contributions can fall short of their full potential.

In this case study, we explore how a highly successful physician, referred to us by his CPA, nearly missed out on a million-dollar opportunity by misunderstanding how a DB plan works. It’s a powerful reminder that plan design isn’t just a technicality—it’s the engine of your wealth-building strategy.

Understanding Defined Benefit Plan Design

Defined Benefit and Cash Balance plans offer pre-tax contributions that can dramatically reduce taxable income. Unlike 401(k) plans with capped contributions, DB plans allow for six-figure annual contributions based on age, income, and years to retirement.

However, these plans are actuarially driven. Investment performance isn’t the focus—predictability and funding consistency are. That’s why strategic design is essential.

Why Defined Benefit Plans Must Be Designed Intentionally

  • DB plans are contribution-first, not return-first. The real advantage is the annual tax deduction, not chasing market performance.
  • Overperformance can backfire. If investments outperform targets, the required contribution can drop to zero, eliminating your deduction in future years.

Compliance and nondiscrimination testing matter. Pairing a DB or Cash Balance plan with a Safe Harbor 401(k) Profit Sharing plan helps you pass testing requirements and offer meaningful benefits to staff.

DB Dilemma: Missing the Forest for the Trees

Dr. Dan, a successful physician in California, was referred to us by his CPA to reduce his tax burden through a defined benefit plan. But like many high-earning professionals, Dr. Dan was laser-focused on investment returns.

“In the DB plan, we’re not trying to have great returns. The real return is the contribution deduction,” Mike explained.

That message didn’t land at first.

Dr. Dan insisted that his personal investments consistently outperformed 10%, and he didn’t want to “settle” for a 5–6% return target. He was ready to walk away from the plan entirely.

The Spreadsheet That Changed Everything

To bring the strategy into focus, Mike built a custom spreadsheet. The tool let Dr. Dan compare two paths:

  1. Taxable investing: After-tax dollars, chasing 10%+ returns.
  2. Tax-deferred DB contributions: Pre-tax savings with a modest 5% return.

The result? Over a 15-year projection, the defined benefit strategy outperformed by approximately $1 million.

Dr. Dan’s response:

“Well, I think the DB plan might be good for me. I need a tax deduction.”

The Real Power of a Defined Benefit Plan

What finally shifted Dr. Dan’s thinking was this realization:

“The tax deductions are like a match from the federal and state government.”

If you contribute $200,000 a year into a DB plan, you’re saving up to $100,000 a year in taxes. That’s not a theory—it’s cash in hand.

Strategic Design Supports Recruiting and Retention, Too

While Dr. Dan’s plan focused on owner savings, many high-income business owners layer a DB plan with a Safe Harbor 401(k) Profit Sharing plan. Why?

  • Pass nondiscrimination testing: These combined plans meet IRS requirements for fair treatment of employees.
  • Reward your team: You can offer staff meaningful retirement benefits without overextending your budget.
  • Attract and retain top talent: Competitive retirement packages are a magnet for high-performing employees.

Strategy Turns Complexity Into Value

Defined Benefit and Cash Balance plans are not set-it-and-forget-it. They require expertise, actuarial insight, and a clear understanding of the tradeoffs between return, contribution, and compliance.

With strategic design, these plans can reduce tax liability, build retirement wealth, and support a healthy company culture. Without it, business owners may miss out on millions.

What Does a TPA Do?

When business owners talk about their retirement plan, they often mention their advisor or the investment lineup. What rarely gets discussed is the role that quietly determines whether the plan actually works, stays compliant, and delivers the outcome the owner expects.

That role belongs to the Third Party Administrator, or TPA.

For businesses offering a 401(k), Safe Harbor plan, defined benefit plan, cash balance plan, or a combination of these, the TPA is responsible for the technical foundation of the plan. This is the work that happens behind the scenes, but it is also the work that keeps the plan from becoming a liability.

A strong retirement plan does not start with investments. It starts with sound design, careful administration, and ongoing compliance. That is where the TPA comes in.

The Role of a TPA in a Retirement Plan

A TPA is responsible for translating complex IRS and Department of Labor rules into a plan that actually functions inside your business.

This includes how the plan is structured, how contributions are calculated, how employees are treated under the rules, and how the plan adapts as the business grows or changes. In simpler plans, that work may feel invisible. In more complex plans, especially defined benefit or cash balance plans, it is essential.

Without experienced administration, even well-funded plans can fail required tests, trigger corrective contributions, or expose the owner to penalties they never expected.

Plan Design: Where Everything Starts

One of the most important things a TPA does happens before the plan is ever implemented.

Plan design determines whether a retirement plan supports the owner’s goals or works against them. This is where decisions are made about the type of plan, how contributions flow, and how benefits are allocated between owners and employees.

For highly compensated owners, design matters even more. Traditional 401(k) limits are often not enough, and defined benefit or cash balance plans can dramatically increase tax-deferred savings when structured properly. At the same time, those plans must meet coverage and non-discrimination rules, which is where experience becomes critical.

Good plan design anticipates growth, hiring, compensation changes, and even ownership transitions. Poor design reacts after the fact.

Ongoing Administration: Keeping the Plan Running Smoothly

Once a plan is established, the TPA manages the day-to-day and year-to-year administration that keeps everything on track.

For 401(k) and Safe Harbor plans, this includes monitoring eligibility, tracking contributions, confirming employer matches are correct, and ensuring Safe Harbor requirements are met each year. When laws change or the business evolves, the TPA manages plan amendments so nothing falls out of compliance.

Defined benefit and cash balance plans add another layer. Annual contribution calculations, coordination with actuaries, funding requirements, and ongoing monitoring all fall under the TPA’s oversight. When income fluctuates or staffing changes, the plan must be adjusted thoughtfully, not reactively.

In combination DB and DC plans, the TPA ensures the plans work together as a coordinated strategy rather than two disconnected benefits.

Compliance Testing and Why It Matters

Compliance testing is one of the areas business owners rarely see, but it is one of the most important.

Retirement plans are required to pass a series of annual tests designed to ensure fairness and compliance with federal regulations. These tests determine whether the plan disproportionately favors owners or highly compensated employees and whether enough employees are benefiting under the rules.

When a plan fails a test, it does not mean the plan is broken. It means corrections must be made, and those corrections can be costly if they are not identified early. A TPA’s role is to run these tests, interpret the results, and guide corrective action before small issues become expensive ones.

Filings, Forms, and Government Reporting

Every qualified retirement plan comes with reporting obligations. These filings are not optional, and errors can result in penalties or audits.

TPAs prepare and manage these filings on behalf of the plan sponsor. This includes Form 5500, actuarial schedules for defined benefit and cash balance plans, participant disclosures, and required plan updates. If a question arises from the IRS or Department of Labor, the TPA provides documentation and support.

For business owners, this removes a significant administrative burden and reduces the risk that something is missed or filed incorrectly.

Fiduciary Responsibility: What the Owner Still Owns

Hiring a TPA does not eliminate fiduciary responsibility. Business owners remain responsible for selecting and monitoring service providers and ensuring the plan operates in the best interest of participants.

What a strong TPA does is reduce fiduciary risk. By keeping the plan compliant, flagging issues early, and ensuring the plan is administered correctly, the TPA acts as a safeguard. Problems are identified before they escalate, and decisions are made with full visibility into the regulatory impact.

What a TPA Takes Off Your Plate

For most business owners, especially those running lean operations, the value of a TPA is not just technical expertise. It is peace of mind.

A good TPA removes the need to interpret regulations, track testing deadlines, prepare filings, or coordinate between multiple service providers. Instead of reacting to compliance issues, the owner gains a plan that runs smoothly and predictably.

That clarity allows owners to focus on running their business while knowing their retirement plan is doing what it was designed to do.

Why the Right TPA Matters

Not all TPAs operate the same way. Experience matters, especially for closely held businesses and highly compensated owners.

The right TPA understands how to balance owner objectives with employee benefits, without overcomplicating the plan or creating unnecessary risk. They think long-term, not just about passing this year’s tests, but about how the plan will function five or ten years down the road.

At Mirador, retirement plans are treated as long-term strategies, not off-the-shelf solutions. Each plan is designed intentionally, administered carefully, and supported with the level of attention business owners expect when the stakes are high.

A well-designed plan does more than satisfy compliance requirements. It becomes a meaningful tool for tax efficiency, employee retention, and long-term financial security, for both owners and the people who help build the business.

Controlled Group vs. Affiliated Service Group: What’s the Difference?

When it comes to retirement plan compliance, few topics create more confusion or risk than Controlled Groups and Affiliated Service Groups (ASGs). They sound like formal structures, but they’re simply IRS-defined groupings of companies that must be treated as a single employer for the purpose of retirement plan testing and compliance.

In our latest video, Mirador Partners, Rachel Rosner and Alison Quesada dig into the details. Here, we expand on that discussion to define these terms clearly and walk through common examples of how they apply.

Why These Rules Matter

Every year, compliance teams revisit this topic for a reason: misunderstanding these group structures can lead to failed nondiscrimination tests, disqualified plans, and significant financial penalties.

If you own multiple businesses, or are affiliated with other entities through service relationships, you must know whether you’re part of a Controlled Group or an Affiliated Service Group. Your retirement plan’s compliance depends on it.

What Is a Controlled Group?

A Controlled Group exists when one or more businesses are under common ownership or control. The IRS defines two main types:

Parent-Subsidiary Controlled Group

Occurs when a parent company owns 80% or more of another company.
Example: You own 100% of Business A and 85% of Business B. These two are in a controlled group.

Brother-Sister Controlled Group

Occurs when five or fewer individuals, estates, or trusts own at least 80% of two or more businesses, and the same group owns more than 50% of the voting power or value of each.
Example: You and your spouse own 100% of Business A and 90% of Business B. These companies likely form a controlled group.

Why It Matters

If a controlled group exists, all companies in the group must be aggregated for retirement plan purposes. That includes:

  • Nondiscrimination testing
  • Coverage testing
  • Top-heavy testing

If one company offers a retirement plan and another doesn’t, the unbenefited employees must still be included in testing, and that can lead to compliance failure.

What Is an Affiliated Service Group?

An Affiliated Service Group (ASG) exists when businesses are linked through service relationships, even if common ownership is less than 80%.

There are two common ASG types:

A-Organization ASG

Occurs when a service organization (A) has an ownership interest in a second organization (B), and the second organization regularly performs services for A or is associated in performing services.

Example: A law firm owns 40% of an administrative support company that exclusively serves the law firm’s clients.

B-Organization ASG

Occurs when a company is economically dependent on providing services to a related business or group, even with no ownership.

Example: You don’t own the marketing firm that exclusively supports your accounting practice, but the same partners operate both companies and refer services back and forth. That may be a B-Organization ASG.

B-Organization ASG


Occurs when one company performs management functions for another business, and there is some degree of common ownership or control, which is not explicitly defined by the IRS.

Example: A management company owned by the same partners who own an architecture firm handles all day-to-day operations (payroll, HR, etc.) for the firm. This may lead to Management ASG consideration.

Common Compliance Pitfalls

Rachel and Alison describe a scenario we see all too often:

“A business owner acquires another company with 10 employees, but doesn’t bring them into the retirement plan. Now that owner controls both companies, and we have a controlled group.”

In this case, all employees across both companies must be included in nondiscrimination testing. If one company’s employees don’t receive benefits, your plan could fail.

It’s Murky and That’s the Point

There’s no single checklist to determine whether you’re in a controlled or affiliated group. The rules are complex, and IRS guidance continues to evolve.

“Technically, we don’t have final guidance on controlled groups. This has been a gray area for years,” says Alison Quesada.

Because of that, most businesses navigating these issues need support from:

  • A retirement plan consultant
  • An ERISA attorney
  • An experienced third-party administrator (TPA)

Know Before You Grow

Whether you’re acquiring another company, launching a side venture, or working with closely related service providers, the structure of your business relationships affects your plan.

Before making a move, work with your advisors to determine:

  • Does this create a Controlled Group or ASG?
  • Are we required to test employees together?
  • How will this impact compliance and contributions?
Reach out to our team to learn more

2026 Retirement Plan Compliance Deadlines and Important Dates

Retirement plan compliance in 2026 brings a full calendar of critical deadlines that employers cannot afford to miss. From new SECURE 2.0 requirements to annual filings, contribution cutoffs, and participant notice timelines, each date plays a role in keeping your plan aligned with IRS rules and supporting a smooth year of administration.

To make planning easier, we have organized the major deadlines that affect 401(k), 403(b), and Defined Benefit plans, along with the changes arriving on January 1, including Roth catch-ups for high earners and eligibility for long-term part-time employees. Use this guide to map out your year, stay ahead of filings, and maintain a compliant and efficient retirement plan.

Click the image below to download an excel spreadsheet of these dates.

2026 Retirement Plan Compliance Task Definitions

Roth Catch-Up Rule Effective (January 1)
The SECURE 2.0 requirement for high earners takes effect at the start of 2026. Participants with prior-year wages above $145,000 must make all catch-up contributions on a Roth basis. Employers should confirm payroll and recordkeeping systems can distinguish between traditional and Roth catch-up elections to prevent reporting issues.

Long-Term Part-Time Employee Eligibility (January 1)
Employees who worked at least 500 hours in both 2024 and 2025 must be allowed to make elective deferrals beginning in 2026. This applies to 401(k) and 403(b) plans and may require updates to your eligibility tracking. Employers should ensure their payroll and HR systems correctly flag LTPT employees.

Form 1099-R Distribution Reporting (January 31)
Form 1099-R must be issued to anyone who received a retirement plan distribution in the prior year. This includes rollovers, refunds, RMDs, and other taxable events. Timely reporting helps participants file accurate tax returns and avoids IRS penalties for late or incorrect forms.

Form 1099-R Paper Filing Deadline (February 28)
If you choose to file 1099-R forms on paper, they must be submitted to the IRS by February 28. Paper filing is less common due to the IRS preference for electronic submission, but the deadline still applies for those who use it. Keep in mind that electronic filings allow more processing flexibility.

Electronic Filing Deadline for 1099-R (March 31)
Plans filing electronically must submit all 1099-R forms by March 31. Electronic filing is now the standard for most organizations and reduces the risk of processing delays. Confirm your file format and submission system are aligned well before the due date.

Employer Contribution Deadline for Pass-Through Entities (March 15)
S-Corporations and partnerships must deposit prior-year employer contributions by March 15 unless they filed for a tax extension. These contributions may include matching, profit-sharing, or defined benefit funding. Meeting this deadline helps maintain deductibility for the prior tax year.

RMD Deadline for 2024 Retirees (April 1)
Individuals who reached their required beginning date in 2024 must take their first RMD by April 1, 2026. After this first distribution, all subsequent RMDs follow the normal year-end schedule. Employers should assist participants with reminders to avoid IRS penalties.

Employer Contribution Deadline for C-Corps and Sole Proprietors (April 15)
C-Corporations and sole proprietors must deposit prior-year employer contributions by April 15 unless they have an approved tax extension. Meeting this deadline allows the business to deduct the contribution for the prior tax year. Contribution types vary by plan design and funding requirements.

ACA and Payroll Alignment Review (June 30)
Midyear is an ideal time to review ACA compliance, payroll coding, and eligibility alignment. This includes verifying measurement periods, plan eligibility for part-time workers, and any changes affecting hours tracking. Conducting this review midyear prevents surprises at year-end.

Form 5500 Due (July 31)
For calendar-year plans, Form 5500 and Form 8955-SSA must be filed by July 31 unless an extension is requested. These filings provide the Department of Labor and IRS with a detailed review of plan operations and participation. Timely submission avoids penalties and keeps the plan in good standing.

PBGC Premiums Due for Defined Benefit Plans (July 31)
Defined Benefit plan sponsors must submit their PBGC premium filings by July 31. Premiums include flat-rate and potentially variable-rate amounts based on plan underfunding. Accurate reporting is essential to avoid penalties and ensure the plan remains compliant.

Extended Contribution Deadline for Pass-Through Entities (September 15)
If an S-Corp or partnership filed for an extension, employer contributions for the prior plan year are due September 15. This extended window allows additional time to calculate profit-sharing and other funding. Contributions made by this date remain deductible for the prior year.

Summary Annual Report Due (September 30)
Plans must deliver the Summary Annual Report to participants by September 30, assuming the Form 5500 was filed on time. The SAR provides a readable overview of plan financial activity and compliance. Timely distribution supports transparency and participant communication.

Safe Harbor Notice Distribution Begins (October 1)
Employers offering Safe Harbor 401(k) plans must begin sending participant notices by October 1 for the upcoming plan year. These notices describe employer contributions, rights, and plan features. Providing them on time is essential to maintaining Safe Harbor status.

Extended Form 5500 Filing Deadline (October 15)
For plans that filed Form 5558 for an extension, the final deadline to submit Form 5500 is October 15. This extended timeline supports more complex plans or those awaiting final audit results. Meeting the deadline ensures the plan stays compliant.

Extended Employer Contribution Deadline for C-Corps and Sole Props (October 15)
If an extension was filed, C-Corporations and sole proprietors must deposit their prior-year employer contributions by October 15. These contributions remain deductible for the prior tax year if deposited by this date. Many businesses use the extension window to finalize financials before funding.

Auto Enrollment and QDIA Notices (December 1)
Plans with auto enrollment or a Qualified Default Investment Alternative must distribute annual notices by December 1 for the next plan year. These notices explain default investment options and participant rights. Providing them early ensures participants have time to make informed choices.

Plan Amendment Deadline (December 31)
Most SECURE 2.0 and discretionary plan amendments for 2026 must be adopted by December 31. This includes compliance updates and optional enhancements chosen during the year. Plan sponsors should coordinate with their TPA and advisor to ensure all required amendments are documented.

RMDs Due for 2026 (December 31)
All required minimum distributions for 2026 must be completed by December 31. Timely distribution prevents participants from incurring significant IRS penalties. Employers should ensure systems and communication processes support accurate year-end tracking.

Deferral and Match Verification (December 31)
Before year-end closes, employers should confirm that all employee deferrals and matching contributions have been posted correctly. This includes reconciling payroll, plan records, and any corrections for missed or late deposits. Verifying totals now reduces operational issues during annual testing.

Case Study: The Difference Good Retirement Plans Make

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.

Understanding the Role of the TPA in Retirement Plan Design

When a business owner decides to offer a retirement plan, it’s a meaningful investment in the future, both for their team and for their own financial well-being. But with that decision comes a new set of responsibilities, deadlines, and regulatory requirements. That’s where a Third Party Administrator (TPA) like Mirador comes in.

What Is a TPA and Why Does It Matter?

A TPA, or Third Party Administrator, plays a critical role in the design, implementation, and ongoing management of retirement plans like 401(k)s. We’re the ones making sure the plan works, for your business, your people, and the IRS.

While the financial advisor focuses on investment options and the recordkeeper handles transactions, the TPA is responsible for how the plan is built and whether it complies with Department of Labor and IRS rules.

In the words of one Mirador expert featured in the video on this page:

“401(k) plans have to abide by a lot of IRS rules and regulations as well as DOL. And so there is a lot of compliance that comes into play. You have to file a Form 5500, you have to do nondiscrimination testing… you as a plan sponsor are responsible. Many plan sponsors, because it’s a lot of work, hire outside help, such as a 401(k) administrator or a third party administrator, where we are assisting you in making sure that you are in compliance with all of the regulations.”

The Business Owner’s Role: Plan Sponsor

When you offer a retirement plan, you’re not just doing something good for your team, you’re taking on the role of “plan sponsor.” That comes with fiduciary responsibility. You’re responsible for making sure the plan is fair, compliant, and properly managed.

This includes:

  • Offering a plan that doesn’t discriminate in favor of highly compensated employees
  • Filing required forms like the 5500
  • Ensuring deadlines are met for contributions, notices, and testing
  • Keeping the plan document up to date

But most business owners aren’t tax code experts. Nor should they be. That’s why TPAs exist.

What a TPA Does

At Mirador, we act as your technical expert and strategic partner in plan design. Here’s what that includes:

1. Plan Design

We don’t sell products, we build plans. That means we customize your 401(k) or defined benefit plan based on your goals: saving more for ownership, rewarding key employees, or staying ACA compliant. We ensure your plan structure maximizes flexibility and tax advantages.

2. Ongoing Compliance

We handle:

  • Annual nondiscrimination testing
  • Coverage and top-heavy testing
  • Form 5500 preparation
  • Required plan notices (Safe Harbor, QDIA, etc.)
  • Contribution limit calculations

We stay on top of IRS and DOL updates so you don’t have to.

3. Consultation and Adjustments

Life changes, and so do businesses. We help you adjust your plan as your headcount, structure, or goals evolve.

Why “Third Party”?

The term “Third Party Administrator” simply reflects the relationship: the business owner (first party) hires an outside expert (third party) to fulfill the responsibilities of plan design and administration. It’s still your plan. You’re still responsible. But with a qualified TPA like Mirador, you’re not doing it alone.

When It Matters Most

Compliance issues often surface long after a plan is in place, during an IRS audit, a failed test, or a missed deadline. That’s why having a proactive TPA is so important. We don’t just check boxes. We anticipate issues, design around your goals, and guide you through the full lifecycle of your plan.Bottom line: You’re responsible for the plan, but you don’t have to manage it alone. At Mirador, we make sure your retirement plan works as hard as you do.

Retirement Plan Design in a Multi-Generational Workforce: What Employers Need to Know

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A Workforce Spanning Four Generations

Today’s workforce is unique: Baby Boomers are delaying retirement, Gen X is approaching it, Millennials are in their peak career-building years, and Gen Z is just beginning. For employers, this generational spread creates both challenges and opportunities when it comes to retirement benefits.

Retirement plan design is no longer about a single formula. It’s about creating flexible, tax-savvy strategies that meet employees where they are, while ensuring owners and highly compensated employees maximize savings and stay compliant.

Gen X: Catching Up and Closing the Gap

The average Gen Xer is around 55 years old, which means retirement is no longer abstract, it’s on the horizon. This group often faces the dual pressure of paying for college-aged children while trying to maximize retirement savings.

Plan features that matter most for Gen X:

  • Catch-up contributions for employees 50+ to accelerate savings.
  • Defined benefit or cash balance plans that allow higher deductible contributions than 401(k)s alone.
  • Options for stable value or fixed income allocations to protect hard-earned savings from volatility.

For employers, offering robust DB/DC combinations creates a powerful incentive for this group to stay engaged and loyal.

Millennials: Balancing Growth and Security

Millennials are now the largest generation in the workforce, often juggling mortgages, young families, and career growth. While they may not save at the same rate as older peers, plan design can encourage them to build long-term wealth.

Plan features that resonate with Millennials:

  • Employer matching on 401(k) contributions reinforces the value of starting early.
  • Profit-sharing contributions reward loyalty and align employee outcomes with business success.
  • Access to financial education tools improves confidence in investing decisions.

This generation values transparency and fairness, making nondiscrimination testing and equitable benefit structures not only compliance requirements but cultural essentials.

Gen Z: Transparency and Tech-Forward Access

The youngest members of the workforce may not yet prioritize retirement, but they do prioritize information and flexibility. For Gen Z, it’s less about the size of the contribution today and more about the clarity of the system.

Plan features that matter most for Gen Z:

  • Transparency into investment allocations, with dashboards that show where their money is going.
  • Mobile-first tools that allow them to manage contributions in real time.
  • Flexibility to adjust allocations as their financial literacy grows.

Employers who position retirement plans as part of a larger benefits package that supports long-term security will stand out when attracting and retaining Gen Z talent.

The Balancing Act for Business Owners

For high-earning business owners and leadership teams, the challenge is balancing the diverse needs of a multi-generational workforce with their own goals: maximizing tax savings, building personal retirement wealth, and remaining compliant with IRS regulations.

This is where strategic plan design becomes critical. For example, nondiscrimination testing ensures that highly compensated employees don’t benefit disproportionately compared to rank-and-file employees. (For more on compliance, see our article on Controlled Groups and Affiliated Service Groups). The right DB/DC structure aligns everyone’s interests, owners save more, employees feel supported, and the company stays compliant.

The Mirador Perspective

At Mirador, we believe retirement planning is about more than meeting contribution limits. It’s about designing plans that reflect the realities of today’s workforce while giving business owners the tax savings and flexibility they deserve.

Ready to see how the right plan can help you save on taxes, maximize retirement savings, and attract top talent across generations? Reach out to our team to start the conversation.

401(k)s: The Overlooked Element in M&A Transactions

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

Download the Compliance Checklist (PDF)
Download the Compliance Checklist (Excel)

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.

Advanced Plan Design with Mirador

Prohibited Transactions with Rachel Rosner and Alison Quesada

When you run payroll, employee deferrals are withheld with the expectation that they will be deposited into the retirement plan quickly. But if those funds sit in the company’s bank account, even for a short time, the IRS considers it a prohibited transaction.

What Is a Prohibited Transaction?

A prohibited transaction occurs when employee retirement contributions aren’t deposited into the plan within the required timeframe. Even if the money is safe in the company account, the IRS treats it as if the business is using employee contributions as a loan.

“You’re not putting employees’ money where it should be going. The IRS wants employee retirement dollars to be in retirement plans as quickly as possible.” – Rachel Rosner

The Timing Rule

Employers have seven business days after payroll to deposit employee deferrals into the retirement plan. While this provides some flexibility, many business owners run into compliance issues when they delay or overlook contributions.

  • Best practice: Run payroll, then immediately transfer contributions to the plan’s recordkeeper.
  • Risk: Chronically missing deposits creates compliance problems and may require corrective contributions from the employer.
  • No exceptions: There is no de minimis rule, every late deposit counts.

Why It Matters

Timely deposits protect employees’ retirement savings and keep your plan in compliance. For business owners, failing to follow the rules doesn’t just create administrative headaches, it can result in additional costs to make employees whole for lost investment earnings.

Prohibited transactions may sound technical, but at their core, they’re about protecting employee savings. Clear processes, accurate payroll records, and consistent follow-through keep contributions timely and compliant.

Ready to see how the right retirement plan team can protect employees and keep your business compliant? Reach out to our team to start the conversation.