A bad quarter is a reason to amend, reduce, or freeze. It is not a reason to skip.

A soft quarter produces a particular kind of phone call. The owner has a cash balance credit, or a defined benefit accrual, sized when the year looked like the prior year. Collections are behind. The owner wants to know whether the contribution can simply not be made, and made up later if the fall is better. The answer is no. A contribution required by an accrued formula is not a discretionary profit-sharing deposit. Skipping it is a funding failure, not a pause. The lawful responses are narrower and more formal: amend the formula before further accruals, reduce future accruals in the way the document and ERISA allow, or freeze the plan so that future accruals stop. Each of those is a written act. None of them is accomplished by not sending the wire.

This briefing is the menu, and the thing that is not on the menu. It assumes a plan that already exists. If the plan is still a draft, the better move is not to adopt a credit the year cannot fund. Sterling Pension Group is a third-party administrator in West Hartford. We prepare the amendments and the notices and we coordinate the independent Enrolled Actuary who will value whatever you adopt. We are not an actuarial firm. We will not agree to "hold off and see" in place of a minimum funding contribution. This is not tax, legal, or actuarial advice.

What has already accrued is not optional

Read the formula and the accrual rules before you read the cash forecast. Some plans accrue the year's credit on the last day of the year, and only for participants who are employed that day, or who have a thousand hours, or who meet some other condition written in the document. Some plans accrue ratably through the year. Some accrue on the first day. The date matters because an amendment can affect future accruals. It generally cannot claw back a benefit that has already accrued, except in narrow circumstances that you should not invent in a cash crunch.

If the 2025 credit has not yet accrued, you may still have a window to change it. The window is measured by the document and by the notice rules, not by your comfort. A significant reduction in the rate of future benefit accrual generally requires a notice under ERISA section 204(h), provided a reasonable time before the effective date of the amendment. "Reasonable time" is not the week you would like the reduction to have already happened. If you are hearing about 204(h) for the first time in late July, assume the effective date you want may be later than the date you need, and ask immediately. Waiting until September to inquire about a notice that had to precede the reduction is how the window closes in the inquiry.

If the credit has already accrued for 2025, the funding follows the accrual. You can still freeze or reduce 2026 and later years, if you do it properly. You cannot erase 2025 by calling the year a disappointment. The briefing on uneven income was the argument for not writing an oversized fixed credit in the first place. This one is what remains when the credit is already in the signed document.

Benefits already earned stay earned. A freeze stops future accruals. It does not confiscate the hypothetical account or the accrued annuity. Those benefits continue to require funding. A freeze is a smaller future promise, not a liquidation and not a contribution holiday. Terminating the plan is a different and heavier process: full funding of benefits under the termination rules, filings, and a timetable that will not solve this quarter's cash. Do not start a termination as a substitute for an amendment you still have time to adopt.

The three moves that are actually moves

Amend the formula prospectively. A lower pay credit, a lower accrual rate, or a compensation definition that matches the pay you will really report can be written into the plan if the amendment is adopted in time and the notice rules are met. The Enrolled Actuary should see the draft, because a lower formula changes the minimum and the deductible maximum. Amending without a valuation is how sponsors adopt a "smaller" plan that is not smaller in the funding target they already have. The staff piece has to be amended with the same seriousness. Cutting only the owner's credit, or cutting only the staff credit, is a nondiscrimination problem as well as a morale problem. Both may be lawful in a specific design. Neither is lawful because it is convenient.

Reduce, if the document already contains a mechanism that lets the credit step down when a condition is met. Some formulas are written with tiers or with a board decision that is still definitely determinable. Many are not. Do not assume a discretionary dial exists because a salesperson once said the plan was flexible. If the dial is not in the document, the way to create a lower credit is an amendment, not a board minute that contradicts the formula. Publication 560 distinguishes pension promises from discretionary profit-sharing contributions. The distinction is the reason your defined contribution plan, if you have one, may still let you decide a profit-sharing amount late in the year while the pension will not.

Freeze future accruals. A freeze is the clean version of "stop." Participants keep what they have. The plan remains a plan. It still needs a valuation, a Form 5500, and minimum funding for the benefits that remain. It no longer adds a new credit each year. For a sponsor whose income has changed for more than one quarter, a freeze can be more honest than a series of emergency amendments. It is also reversible later by an amendment that starts accruals again, if the business recovers and the tests still pass. Reversible does not mean casual. Each direction is a document.

Doing nothing is the move that is not a move. A missed minimum required contribution is an accumulated funding deficiency. The excise tax is 10 percent of the unpaid amount, reported on Form 5330. If it is not corrected in the taxable period, an additional tax of 100 percent can apply. The 10 percent is not a cost of capital and not a fee you may choose instead of funding. Form 5558, which extends the Form 5500, does not extend Form 5330. The IRS Form 5500 corner notes that separation. Correcting the funding failure means making the contribution, not describing it.

Dates that do not substitute for each other

For a calendar-year defined benefit plan, the minimum required contribution is generally due September 15 of the following year. From this briefing, September 15, 2025 is the general due date for the 2024 minimum, and it is close. Some plans owe quarterly installments before that. The amount is the amount on the actuary's certification, not the amount that feels survivable. Pay the certified minimum even if you are in the middle of amending 2025. The amendment does not rewrite the prior year's Schedule SB.

The deduction is governed by section 404, including the timing rule in section 404(a)(6), which can treat a contribution paid by the due date of the return, including extensions, as if it were made on the last day of the prior year. Your CPA has to apply that rule to your entity. A corporation or partnership extended to September 15 and a sole proprietor extended to October 15 are not in the same deduction posture. Neither posture repeals the funding deadline. You can owe a deposit on September 15 for minimum funding and still be discussing, with the CPA, which taxable year the deposit belongs to. Ask both questions. Do not accept one answer as if it covered both.

The 2025 dollar limits do not flex because the quarter was bad. Compensation taken into account cannot exceed $350,000. The defined benefit limit is still an annual benefit of $280,000, with the reductions the IRS describes on its benefit limits page. A 401(k) deferral is still $23,500, with a catch-up of $7,500 or, at ages 60 through 63, $11,250 in place of $7,500. Annual additions other than catch-up are still $70,000. Those are published in IR-2024-285 and on the COLA page. They are ceilings. They are not a reason the pension credit becomes optional below the ceiling. The limits summary keeps the ceilings in one place so they are not renegotiated in a cash meeting.

Who does what in a reduction

You decide that the business cannot support the current accrual. Counsel should look at the amendment if the plan is not a simple prototype change, especially if a 204(h) notice, a freeze, or a controlled group is involved. The Enrolled Actuary reruns the valuation on the amended plan and tells you the minimum that remains. The CPA tells you what is deductible and when. Sterling Pension Group drafts and administers the amendment, the notice, and the census that the actuary will use, and we keep the Form 5500 story consistent with the plan that actually exists at year-end.

The plan after adoption includes this chapter. Plans are amended. Freezes happen. What does not happen, in a plan we administer, is a silent skip. The calendar is where September 15 sits beside the Form 5500 dates so nobody uses one deadline as a synonym for the other. A cash balance account that was credited under the old formula stays credited. Next year's statement should show a new formula only after the document says so.

If you are wondering whether the plan should have existed, the reasons it may not be a fit are worth reading before you unfreeze. A freeze is a responsible response to a bad stretch. A new plan in the same business six months later, on the same volatility, is how the stretch becomes a pattern. Profit-sharing inside a defined contribution plan can absorb the good quarters without a funding statute. It will not match a pension deduction in a peak year. That trade is the original design choice, and a bad quarter is a fair time to remember that you made it.

Illustrations of a reduced credit are still illustrations. A page that says the minimum "might" fall by some dollar amount is not Schedule SB. Do not spend the reduced amount until the actuary certifies it. Do not tell participants the benefit changed until the notice and the document say it changed.

What to do in the next two weeks

Read the accrual section of the document and write down when the 2025 benefit accrues. If you do not understand the sentence, send the page to the administrator and ask for the date in plain language. That date decides whether this year's credit is still movable.

Ask the Enrolled Actuary for the certified 2024 minimum and the date it is due. If it is unpaid, pay it or schedule it. Do not condition the payment on the outcome of a 2025 amendment.

If the 2025 formula is larger than the business can fund, say so in writing this week and ask whether a prospective amendment or a freeze can still be adopted, and whether a 204(h) notice is required. Ask what the notice timing does to the effective date. Then call us with that date. We will tell you what can still be written down. We will not tell you that silence is one of the options.