Small law firms adopt cash balance plans because partners have different ages, different draws, and a shared annoyance with the 401(k) cap. A cash balance formula can give a larger pay credit to an older partner and a smaller one to a younger partner, within nondiscrimination rules. It cannot give a senior partner a private tax shelter that ignores associates.
Two practical problems show up every year. First, guaranteed payments and W-2 wages get mixed up in conversation. The plan sees compensation the document defines, which has to match how the firm actually pays people. Second, a lateral hire mid-year changes the test. Read staff cost and who does the valuation.
The 2026 defined-benefit dollar limit is $290,000 of annual benefit, per the IRS. It is not a contribution. Illustrations belong on the illustrations page. For the firm’s existing 401(k), including Roth catch-up for high earners in 2026, ask the recordkeeper; that rule is not a cash balance rule. Background is in IR-2025-111.
