The employee census decides the plan, not a slogan

The sentence that gets owners into trouble is short. "I want the maximum pension." The sentence that should replace it is longer. Who, exactly, works here, in every entity I control, and what did we pay them? Until that list exists, a cash balance proposal is a slogan with a typeface. The census is the plan. The formula is a way of assigning benefits to the people on the census without breaking the coverage and nondiscrimination rules, and without promising a benefit the sponsor will not fund.

This is a mid-October briefing for owners who still have a 2024 design window and who are about to be shown an illustration with one name on it. If you are a physician, a dentist, an attorney, or a consultant between 40 and 65, assume the illustration is incomplete until you have tried to break it with your own payroll. Sterling Pension Group LLC in West Hartford is the third-party administrator that will have to live with the census you certify. We coordinate independent Enrolled Actuaries. We are not an actuarial firm. This note is education, not tax, legal, or actuarial advice.

What belongs on the list

A usable census is dull, and dull is what you want. For every person who receives or will receive a W-2 from any business you own or control, record the legal name, date of birth, date of hire, date of termination if they left, hours or a credible estimate of hours, and compensation the plan's definition would count. Ownership percentages belong on the same page, including family ownership your counsel says the attribution rules pick up. A spouse on payroll is an employee. A child on a summer payroll can be an employee. A partner in a partnership is not a W-2 employee, and the earned-income calculation is your CPA's, but the partner still belongs in the design conversation.

Independent contractors belong in a separate column, not in the trash. Some are genuinely independent. Some are employees under the tests that matter, whatever the invoice says. Classification is a legal conclusion for counsel and, where employment tax is concerned, for your CPA. A retirement plan does not bless a misclassification. If a hygienist, an associate, or a contract attorney is on a 1099 and works like staff, do not ask the actuary to pretend otherwise. Put the question on the table in October, when there is still time to correct course for the rest of the year if correction is even available.

Hours matter because eligibility often turns on them. A person who always works three days may still cross a thousand-hour threshold. A person you think of as part-time may not be excludable. You do not need to memorize the statutory tests to do the first sort. You need the hours. The staff cost page explains why that sort changes the owner's economics. The practice-specific notes are /insights/physicians and /insights/dentists.

Related employers are part of the census

The most common omitted page is the second entity. The professional corporation employs the owner. A staffing company, a billing office, or the company that owns the building employs everyone else. Or the consultant has a single-member practice and a second LLC with one assistant. Controlled group and affiliated service group questions are technical, and they are not optional. A plan that covers the owner and excludes the assistant because the assistant is "in the other company" fails if the companies have to be aggregated.

Write the entities down before you write the desired contribution. Entity name, tax classification, owners, and whether it has a payroll: that is the list your CPA should see in the next two weeks. Sterling can help you see what a combined census does to a design. We cannot give you a legal opinion that two companies are, or are not, a controlled group. If your counsel has not looked, the illustration you like is provisional.

Owners who are truly alone still run this test. No employees in any entity, no spouse on any payroll, no predecessor employer whose plan still exists. A clean solo result is a good result. It points you to the self-employed discussion and to a comparison of formulas in /insights/db-versus-cash-balance. It does not point you to a larger fictional deposit. Even a one-person cash balance credit is actuarial. It is illustrative until the enrolled actuary says otherwise.

Slogans the census retires

"Only owners are in the pension." Sometimes a structure can be tested that way, and sometimes it cannot. The cash balance plan and a 401(k) profit-sharing contribution often work as a pair precisely because staff need a benefit somewhere in the arrangement. That pairing is explained in /insights/combo-plan and on the combo page. It is a testing strategy an actuary has to confirm, not a slogan.

"We will use a one-year wait so this year's hires do not count." A waiting period can delay entry. It does not erase a person who was hired three years ago. It does not always exclude this year's hire from every test. If your goal is a 2024 accrual, look at who is already eligible under the waiting period you intend to write, not at who you wish were still in a probationary fog.

"The associates do not count because they are highly paid and will leave." Highly paid staff are still staff. A nondiscrimination test does not award points for turnover you hope will happen. If an associate is an employee, the associate is on the census. If you expect the person to become an owner, say so, because owner status changes the design again.

"Family attribution will not matter because my spouse has a separate practice." It might matter a great deal. This is counsel's question. Do not answer it yourself in order to keep an illustration intact.

Compensation is a census field, not a mood

The 2024 compensation cap is $345,000. Pay above that cap is left out of many plan purposes. The 401(k) deferral limit is $23,000, with a $7,500 catch-up if the person is age 50 or older. The defined contribution annual additions limit is $69,000. The defined benefit annual benefit limit is $275,000. The IRA limit is $7,000. Those are Notice 2023-75 figures. The IRS has not released the 2025 table. Do not build a 2024 census using a compensation cap you think might rise. When a new table exists, it will be on the COLA increases page.

For the owner of an S corporation, use W-2 wages you will actually report, not a draw and not a year-end bonus you have not decided to pay through payroll. For a sole proprietor or partner, use the earned-income concept your CPA uses. A cash balance credit expressed as a percentage of pay is meaningless if the pay figure is fictional. A flat-dollar credit is equally meaningless if you cannot fund it once staff credits are added.

Any owner contribution attached to that census before a valuation is illustrative. The $275,000 benefit limit is not the credit. Two owners with the same capped compensation and different ages will not have the same illustrative credit, and two owners with the same age and different staff lists will not either. The IRS benefit-limit overview is here: retirement topics, defined benefit limits. Publication 560 is the small-employer booklet that sits underneath the slogans.

What the actuary and the administrator each do with the list

The enrolled actuary tests and values. Sterling, as administrator, keeps the list consistent with payroll, with the document's eligibility rules, and with the Form 5500 counts you will eventually sign. Those counts are not a creative exercise. A calendar-year Form 5500 is generally due July 31, extendable to October 15 with Form 5558, and it is filed on EFAST2. The Department of Labor's filing guidance is here: Form 5500 reporting. The IRS companion page is the Form 5500 corner. You are not filing in October. You are building the census that will make a later filing true.

If the census shows a staff cost you will not pay, the plan is not a fit. That is a successful use of the list. If the census shows a cost you will pay, the design can proceed toward a document, and the funding dates still have to stay distinct. Minimum funding for a calendar-year defined benefit plan is generally due September 15 of the next year, 8.5 months after year-end. A missed minimum can mean a 10% excise tax on Form 5330. The deduction often follows the return due date including extensions under IRC 404(a)(6). Your CPA confirms the deduction date. The census does not change those clocks. It changes whether you should start them.

PBGC coverage is also a census question of a kind. Many small professional-service employers are exempt. Exemption is plan-specific, and it is not granted to every small employer. A census that grows can change the analysis. Do not write "PBGC exempt" in the margin because the practice feels small. The fees and plan lifecycle pages assume you will ask the coverage question rather than inherit an answer from a slogan.

Deferrals still depend on the people who are paid this year

A perfect census delivered in December does not recreate 401(k) deferrals from paychecks already issued. The SECURE Act generally allows plan adoption as late as the filing deadline, including extensions. It does not allow retroactive employee deferrals through payroll. If people on your census, including you, are supposed to defer in 2024, elections have to hit the remaining payrolls. The deferral limit of $23,000, and the $7,500 catch-up where age allows it, are per person and per year. They are not increased because the census was difficult to assemble.

Notice 2023-62 delayed the SECURE 2.0 Roth catch-up mandate through 2025. It is not in force. It does not change who is on the census, and it does not change the cash balance formula. When it becomes operational, beginning January 1, 2026, it will affect catch-up deferrals for participants whose prior-year FICA wages exceeded $150,000, inside the 401(k), not inside the pension. For this October's list, ignore it.

How to read an illustration once the census is real

Put the full census next to any illustrative owner credit and ask three questions. What did staff cost in dollars, not in percentages someone rounded? What happens if one part-time person crosses the hours threshold? What happens if compensation for the owner comes in $50,000 under the figure used in the sketch, or if it is limited by the $345,000 cap? If the proposal only works on the first version of the list, it does not work.

The illustrations on this site are teaching ranges. They are not your census. The calculator is the same kind of tool. Bring them to a meeting if they help you ask better questions. Do not bring them as the census.

October is late enough that the list should be substantially done, and early enough that eligibility, a 401(k) election, and a staff-cost decision can still be made without panic. Owners who wait for a slogan to be "run both ways" after Thanksgiving are asking professionals to decorate a decision that the payroll register has already made.

What to do in the next two weeks

Build the list, then decide whether a plan survives it.

• Export every payroll register for 2024 year to date, from every entity, and add a column for expected pay through December 31. Include owners and spouses.
• Add date of birth, date of hire, and hours. Flag anyone paid on a 1099 who works on your premises or on your schedule, and ask counsel how they should be classified before a plan document names eligibility.
• Ask your CPA which entities must be considered together. Do not filter the list to protect an illustrative contribution you liked.
• If staff costs are acceptable, ask for a design that uses the real list under the 2024 limits, including the $275,000 benefit limit as a benefit limit only. If they are not acceptable, stop and read when it is not a fit.
• If anyone should still defer for 2024, tell payroll this week. The census project does not extend the deferral clock.

When the register is complete, contact Sterling Pension Group. Send the census. Do not send a target deposit and ask us to make the people fit the target.