Updated July 28, 2026. Quick answer: A cash balance plan is a defined benefit plan, so its contribution is actuarially determined and legally required — IRC §412(a)(1) says a covered plan “shall satisfy the minimum funding standard.” This is the opposite of a profit-sharing contribution, which you can simply skip in a bad year. It is the single biggest reason these plans go wrong for owners with variable income.
Why it is a defined benefit plan at all
IRC §414(i) defines a defined contribution plan as one providing an individual account with benefits based solely on amounts contributed. §414(j) then defines a defined benefit plan as “any plan which is not a defined contribution plan.” A cash balance plan’s account is hypothetical, so it falls to §414(j) by residue — and §411(a)(13)(C) confirms the framing, describing it as “a defined benefit plan under which the accrued benefit … is calculated as the balance of a hypothetical account.”
What “required” means concretely
| Profit-sharing / solo 401(k) | Cash balance | |
|---|---|---|
| Contribution in a bad year | Skip it | Still owed |
| Who sets the amount | You | An actuary, under §430 |
| Annual professional cost | Minimal | Actuarial valuation every year |
| Liability if you own related businesses | — | Joint and several across the controlled group |
§430(a) sets the minimum required contribution as the target normal cost plus any shortfall amortisation charge, on assumptions that §430(h)(1) requires to be “reasonable … and which, in combination, offer the actuary’s best estimate.” And §412(b) makes each member of a controlled group “jointly and severally liable” for the contribution.
The honest test before opening one. Not “can I afford this in a good year” but “can I fund this in my worst plausible year, and in the year after that”. Plans can be designed with a contribution range, and can be amended or frozen — but those are decisions made under time pressure with a required contribution already accruing. Vesting is fast too: §411(a)(13)(B) requires 100% vesting at three years, so staff you enrol are not on a long vesting schedule.
And the ceiling is lower than the marketing suggests in the early years — the limit phases in over a decade.
Every dollar limit in this area is indexed and changes annually. The figures printed in the Code itself — $40,000 for the defined-contribution limit, $160,000 for the defined-benefit limit, $15,000 for elective deferrals — are 2001 and 2005 base amounts that will never be updated in the statute; IRC §415(d) and §402(g)(4) do the adjusting. Get the current year’s figures from the IRS cost-of-living notice for that year rather than from any article, including this one. Nothing on this page states a dollar amount for that reason.
Sources
IRC §414(i) and §414(j); §411(a)(13)(B) and (C); §412(a) and §412(b); §430(a) and §430(h)(1); §415(b)(1)(A), §415(b)(2)(C) and §415(b)(5)(A). All read July 2026.
This states what the cited authority says. It is not tax advice, and retirement-plan design turns on facts about your business and your other entities that no page can see. Every dollar limit referenced here is indexed and changes annually.