July is when the illustration meets the payroll.

An illustration prepared in January is a hypothesis about compensation. By the first week of July the hypothesis has had six months to become wrong. Billings slowed, a partner left, a bonus was paid early, wages were held down, or the year is better than the sketch and nobody has said so. The plan does not average your intention. It uses the compensation the document defines, as it actually exists, and the funding and the deduction have to live with that figure. July is the last comfortable month in which to notice the gap. After this, amendments get harder, payroll has fewer checks left, and the funding date stops being abstract.

For a calendar-year defined benefit plan, including a cash balance plan, the minimum required contribution for the prior year is generally due September 15. That date is about ten weeks from this briefing. It is not the due date for deciding what 2025 compensation will be, but it is close enough that a practice which is late on 2024 funding should not spend July redesigning 2025. Deposit what the Enrolled Actuary certified, then look at this year. The deduction often follows the employer's return, including extensions, under section 404(a)(6). Confirm that with your CPA. The funding date and the deduction date are different rules. They sometimes share a day on the calendar. Sharing a day does not merge them.

Sterling Pension Group is a third-party administrator in West Hartford. We can put the midyear census next to the illustration. We do not certify the contribution. An independent Enrolled Actuary does. We are not an actuarial firm, and this briefing is not tax, legal, or actuarial advice.

What to compare, exactly

Take the illustration you are using for 2025 and read the compensation it assumed for each person. Then take the payroll register, or the books if you are a sole proprietor, and write the year-to-date figure beside it. Annualize only as a question, not as a fact. Six months of wages times two is a guess about the second half. It is a better guess than January's round number, and it is still a guess. The useful comparison is three columns: assumed compensation, year-to-date compensation, and what you will actually pay if the second half looks like the first.

For an S corporation, the column that matters is W-2 wages. Distributions do not belong in it. A shareholder who is "on pace" for a large K-1 and a small wage is on pace for a small plan, no matter what the January sketch said when someone typed total income into the compensation field. The briefing on that distinction is the longer version. The July version is a single instruction: if the wage will not reach the figure in the illustration, the illustration is already stale.

For a partnership, use earned income, not the draw. A draw that is ahead of profit is not compensation. A draw that is behind profit is not a reason to understate compensation if the profit is real and the partner is performing services. Your CPA has to be in that measurement. We will not convert a partner's estimate of "what I take home" into plan compensation.

For a sole proprietor, the Schedule C is the source, and half a year of book income is a draft. Owner's draws are not wages and not a salary you can point to. A self-employed design that was illustrated on last year's net profit needs this year's profit, year to date, before anyone repeats the contribution figure in a conversation with the CPA.

The compensation cap still applies. For 2025 a plan may not take into account more than $350,000 of compensation. If the illustration assumed more than that, it assumed a number the statute deletes. If you are below the cap and falling short of the assumed wage, the cap is not your problem. The shortfall is.

What a gap does to the numbers

A cash balance pay credit that is a percentage of pay moves when pay moves. If the formula is 50 percent of compensation and compensation will be $200,000 instead of $300,000, the credit is not the January credit. Those percentages and dollars are illustrative. They are not a formula we recommend and they are not IRS limits. A flat dollar credit does not move when pay moves. That is the point of a flat credit, and it is the risk. The credit stays. The cash available to fund it may not. If July already shows that the flat credit was sized to a year you are not having, the time to talk about a prospective amendment is now, while there is still a prospective period left. Waiting until the credit has accrued is how a discussion becomes a funding problem.

A traditional defined benefit formula tied to average compensation will also move, more slowly. One weak year inside a career average does less than one weak year inside a cash balance percentage. It still changes the valuation. The actuary should see the revised pay before you rely on a minimum and a maximum that were run on the old pay.

Defined contribution limits do not rescue a stale illustration, but they bound the 401(k) piece. For 2025 the elective deferral limit is $23,500. The catch-up is $7,500, or $11,250 if the participant attains age 60, 61, 62, or 63 this year. The higher catch-up is instead of the $7,500, not in addition. Annual additions other than catch-up are limited to $70,000. An IRA, separate from the plan, is $7,000. The defined benefit dollar limit remains an annual benefit of $280,000, not a deposit. The IRS published these figures in IR-2024-285 and maintains them on the COLA page. The benefit limit's reductions for age and service are described on the IRS benefit limits page. Publication 560 is the small-employer overview. None of those pages knows your year-to-date payroll. The limits page states the same 2025 figures without turning them into a contribution promise.

If the year is better than the illustration, July is also the month to say so. A larger wage can support a larger credit only if the formula, the tests, and the timing allow it. Raising a formula for a year is an amendment that has to be adopted before the accrual you want to increase. A better year discovered in December is often a year you can profit-share into a defined contribution plan, if that plan's formula is discretionary, and cannot pour into a pension credit that was written too small. The calculator can help you see the tax shape of a deposit. It cannot see your payroll, and it is not a valuation.

The two Septembers

Mark September 15 for what it is. For a calendar-year defined benefit plan, it is the general due date of the minimum required contribution for the plan year that ended the previous December. Some plans owe quarterly installments as well. The actuary's certification states the amount. A miss triggers an excise tax of 10 percent on Form 5330, and a further tax if the shortfall sits uncorrected. Do not use a midyear illustration meeting to delay that deposit. The 2024 minimum is not a function of how 2025 feels.

Mark the deduction separately. If your extended business return is due September 15, your CPA may be treating that day as the last day to contribute an amount deductible for 2024 under section 404(a)(6). If you are a sole proprietor with an extension to October 15, the deduction window and the funding window may not even end together. Ask the CPA which year's deduction a July or September deposit will support, and whether the return was actually extended. A return filed in March does not stay open because the plan's funding date is in September.

The deadline calendar puts these dates in one view so the contribution, the return, and the Form 5500 stop sharing a nickname. The 2024 Form 5500 series was due July 31, 2025, unless Form 5558 extended it to October 15, 2025. If that extension was not filed and the return is still unfiled, you have a filing problem in addition to a funding date. Fix the filing with the administrator. Do not fold it into the compensation conversation as if it were one project.

Staff, spouses, and the rest of the census

A midyear check that looks only at the owner is incomplete if anyone else is eligible. Hours through June tell you who is approaching a year of service, who dropped below the document's threshold, and who was hired into a class the formula treats differently. A spouse's wage belongs in the same review. If it is running below the figure that justified a second benefit, the second benefit needs a new illustration, not a pep talk. Related businesses belong in the review if their payroll changed, because coverage is an employer-level rule.

Bring actual year-to-date numbers, not a narrative. "A bit soft" is not a census. A payroll report is a census. The illustrations you already have can stay on the table as the hypothesis. The new page is the evidence. Where they differ, the evidence wins, and the hypothesis gets rerun.

If the gap is large enough that you may not fund the 2025 credit, do not skip quietly and do not wait for a November meeting to say so. A prospective reduction or a freeze has a procedure. A missed minimum has a penalty. The choice between those paths is the subject of a later briefing this month. The facts that choice depends on are available now, from the payroll system, without any new theory of the plan.

What to do in the next two weeks

Print the illustration and the year-to-date payroll register. On one line per person, write assumed pay and year-to-date pay. Circle any owner whose annualized pay is more than a small variance away from the assumption. A variance of a few thousand dollars inside a busy payroll is not the issue. A variance that changes the credit, or that shows wages far below a K-1 the illustration treated as pay, is the issue.

Confirm with the actuary, in writing, the 2024 minimum and whether any quarterly amount is still unpaid. If the minimum is unpaid, schedule the deposit before you schedule a redesign. Confirm with the CPA which deduction year a deposit this month would fall into.

If the 2025 columns do not match, ask for a revised illustration labeled as an illustration, using the pay you will actually hit. Then send us the two columns. We would rather rerun a sketch in July than defend a January number against a W-2 in January.