For the right employer, a “combo plan” can create a powerful opportunity to increase deductible contributions and accelerate retirement savings.

What is a Combo Plan?  A combo plan generally combines a defined contribution plan and a defined benefit plan for the same employer or controlled group.  A common combo design pairs a safe harbor 401(k) plan with a cash balance plan.  The 401(k) plan allows salary deferrals and employer contributions, while the cash balance plan can support much larger actuarially determined contributions, often favoring older owners.

Example.  A 55-year-old business owner with $360,000 of annual compensation sponsors a 401(k) plan and a cash balance plan.  She receives employer contributions to the 401(k) plan of $21,600 and makes $24,500 of elective deferrals and $8,000 of catch-up contributions.  Her total contributions to the 401(k) plan are $54,100.  The cash balance plan might separately support a much larger actuarially determined contribution, for example, $180,000.

Compliance Framework:  Combo plans require coordination under several Code provisions, including Section 404 (deduction limits, including coordination between DB and DC plans), Section 415 (defined benefit and defined contribution limits), Section 401(a)(4) (nondiscrimination) and Section 410(b) (coverage).  In many cases, the plans are tested on a combined basis, rather than plan-by-plan, to demonstrate the overall arrangement does not discriminate in favor of highly compensated employees.  The defined benefit component also introduces minimum funding and actuarial considerations that do not exist in a stand-alone 401(k) plan.

On-Going Administration Matters: These arrangements require annual attention to census and ownership data, controlled-group status, compensation definitions, eligibility, minimum participation under Section 401(a)(26), top-heavy considerations (including minimum contribution requirements), deduction timing, and required cash funding for the DB component.  A combo plan that looks great in a proposal can become problematic quickly if assumptions change.

Where TPAs Can Help:

Combo plans can be some of the most valuable arrangements a client can implement, but they also bring risk.  Poor designs can produce failed testing, unexpected minimum required contributions, missed funding targets, or structures that were never realistic given staff demographics.  TPAs are often the professionals best positioned to help clients establish well-designed plans and ensure proper testing and administration.

If you have any questions or are looking for more information about Combo Plans, feel free to reach out to your trusted TBC TPA.

Upcoming deadlines.

May 15: Quarterly benefit statements for participant-directed individual account plans are generally furnished by this date for the quarter ended March 31, 2026.

In 401(k) administration, a plan review is often most valuable when the employer’s business changes, even if the plan document itself has not. A plan that worked well last year can drift out of alignment when ownership, payroll, compensation, or workforce patterns shift. Periodic reviews help TPAs catch issues before they become failed testing, correction projects, or participant problems.

A Few Triggers to Consider

Ownership changes.  New owners, equity grants, family ownership changes, and entity-level changes are great reasons for a plan review.  For example:

• Ownership and entity changes can affect who is an HCE or key employee. Ownership attribution rules make this easy to miss without a plan review.
• When corporate structures change, controlled group or affiliated service group rules may require related employers to be considered together. That can affect coverage, limits, and testing, and may require looking at more than one plan at the same time.
• Mergers, acquisitions, and divestitures are classic review triggers, often affecting both the employee census and the group of related employers. Transition rules can help with testing, but only if understood and properly applied.

Significant pay changes. Deferrals, match, and other plan contributions and allocations must follow the plan’s compensation definition, but often new bonuses, commissions, or other new types of compensation are added without being coded as plan compensation.  This can create definition of compensation mistakes and change testing outcomes.

Hiring shifts. Plan errors are easy to make in times of rapid growth, high turnover, and when moving from owner-only coverage to covering a broader workforce.

Payroll or administration changes. A new payroll vendor, separate payrolls by entity, new pay codes, or process changes are strong reasons to review how a plan is actually being administered.

Why TPAs Should Care

Failure to follow plan terms, definition of compensation mistakes, matching contribution errors, and failed ADP/ACP testing are common 401(k) problems, often caused by missing changes in company structure or operations. A timely plan review can catch these issues while they are still small, often before year-end testing, corrections, or participant complaints force the issue.

How TPAs Can Help

TPAs can build plan-review triggers into annual questionnaires and mid-year check-ins. For example, ask whether there were ownership changes, new entities, acquisitions, payroll changes, unusual bonus programs, or major workforce shifts. If the answer is yes, compare plan terms to actual operations, confirm the compensation definition is being applied properly, and revisit whether the current plan design still fits the client’s workforce and goals. Your proactive review process can help clients avoid avoidable compliance problems and keep the plan working as intended.