Two owners, two ages, one plan

Two owners will often ask for the same contribution because fairness, in a partnership, has meant the same draw for twenty years. A cash balance plan does not define fairness that way. It defines a benefit, tests that benefit under the nondiscrimination rules, and funds it with an employer contribution that is a firm obligation. The owners are not each holding a personal IRA that happens to share a trust. Pay credits do not have to match. In many firms they should not. An equal dollar credit can waste the older owner's capacity under the benefit limit, overstate what the younger owner can even receive, or fail the test once staff are included. An equal percentage of pay can do the same thing more quietly.

Sterling Pension Group LLC in West Hartford administers these plans as a third-party administrator. We are not an actuarial firm. An independent Enrolled Actuary certifies what the chosen credits cost and whether the funding rules are met. Counsel and the owners decide what the partnership agreement is supposed to mean. This briefing is not tax, legal, or actuarial advice. It is an explanation of why "just split it evenly" is a design choice with a number attached, not a default the statute requires.

One employer, one formula, two ages

The plan sponsor is the firm. The contribution is the firm's deduction, allocated to participants through a formula in the document. It is not two checks the owners write from personal accounts and then reimburse themselves for in a side letter. If the side letter says the younger owner will "make the older owner whole" outside the plan, you have created a nonqualified mess next to a qualified one. Say the economic deal inside the formula, or say it in compensation the CPA can defend. Do not say it in a hallway agreement the plan cannot see.

Age changes the cost of a benefit and the maximum benefit the law will let you fund. The section 415(b) ceiling is an annual benefit of $290,000 for 2026, reduced when benefits start early or when participation is short. The IRS explains that structure on its defined benefit limits page. The ceiling is not a contribution. There is no flat IRS cash-balance contribution cap. The deposit is actuarial. An older owner, closer to the age when the annuity limit can be paid in full, generally has a larger maximum lump-sum equivalent and fewer years left to fund it. The illustrative deposit that owner can support is often much larger than the illustrative deposit a 40-year-old partner can support, even when both draw the same pay.

These figures are a teaching sketch, not a valuation and not a result for any client. Assume pay at the $360,000 compensation cap, no prior accrual, a fixed market-rate style interest credit, retirement set near 62, and no staff. Under those assumptions an owner around 45 might see an illustrative band on the order of $160,000 to $210,000, and an owner around 60 might see an illustrative band on the order of $300,000 to $400,000. Change the credit rate, the retirement age, or the compensation history and the bands move. Add staff and they move again. An enrolled actuary replaces both numbers. The point of putting them in the same sentence is the gap. Equal credits ignore the gap. The illustrations page is where that slope is supposed to stay labeled as illustration. The limits page is where $290,000 stays a benefit ceiling.

A younger owner cannot be assigned the older owner's deposit just because the firm has the cash. The benefit that deposit would buy may not fit under 415(b) once it is expressed as an annuity starting at a lawful age, and the testing rules may not permit it. Promising the younger partner "we will each do the max" without saying that the two maximums differ is how partnerships have their first unhappy meeting with a pension.

Testing looks at benefits, and staff look at both of you

Nondiscrimination testing for a defined benefit plan looks at the benefits provided, not at whether the partners feel the deposits match. A larger credit to an older owner can be a legitimate result of an age-weighted or cash balance formula. It can also be more than the test will allow once the staff formula is taken into account. The highly compensated group is not "the owners" by courtesy. It is a statutory category. For 2026, an employee who earned more than the indexed threshold in the prior year can be highly compensated even if that person is not an owner. Two owners and one highly paid associate can be three people on the wrong side of a test that last year had two.

The younger owner is sometimes not trying to maximize anything. That owner may be funding a house, buying into the practice, or genuinely uninterested in tying up firm cash. A modest pay credit for that owner, and a larger one for the older owner, can be the design that fits both the economics and the test. It has to be written in the document. It will not happen because the older owner contributes extra and the administrator "puts it in the right column" later. Cash balance credits are formula credits. Discretion exists only where the document allows a range or a class, and only if the chosen point still passes. Decide the credits, or the permitted range, before the year is so far along that the formula can no longer be amended without cutting a benefit someone has already accrued.

Staff cost is a firm cost. It is not the older owner's personal surcharge and it is not erased by the fact that the younger owner "did not want a plan." If the firm adopts the plan, the firm funds the staff benefit the test requires. How the partners bear that cost internally is a compensation question for the CPA and the partnership agreement. The plan still has to be funded. The staff cost page is the honest version of that budget line. A design that works only if the younger partner pretends the staff do not exist is a design that does not work.

If a 401(k) sits beside the pension, the partners' deferrals do not have to match either. The elective deferral limit is $24,500. Catch-up is $8,000, or $11,250 if the partner is age 60, 61, 62, or 63. Those are personal payroll elections, capped per person, and they sit outside the cash balance pay credit. Roth catch-up is operational in 2026 when prior-year FICA wages from the employer exceeded $150,000. It applies to the 401(k) catch-up, not to cash balance pay credits. One partner can be over that wage threshold and the other under it. Ask the 401(k) recordkeeper to set each election. Do not write a partnership resolution that purports to waive the Roth rule. Final regulations are stricter in 2027. This year is good-faith operational compliance. The combined-plan deduction rules can limit how much profit sharing the firm stacks on top of a large pension deduction. That coordination is a CPA question and a testing question. It is described in outline in Publication 560 and it is why combo plans are designed together rather than bolted on in December.

Ownership, family, and the partner who is about to leave

Equal ownership percentages are not required for a plan, and unequal percentages change testing and sometimes change who is a key employee. A 70/30 firm is not a 50/50 firm with a modest adjustment. Attribution rules can treat a spouse's ownership as yours. A spouse on payroll is a participant if the document's age and service rules say so, not if the partners would prefer a cleaner headcount. Tell the administrator about both the equity and the household. Surprises in this category are expensive because they rewrite the highly compensated group.

A partner who will retire or sell in the next year or two is the person whose credit most needs a multi-year look. A single large credit in the final year can be lawful and can also be impossible if the benefit limit, the compensation history, or the funding rules will not support it. The sale briefing covers the transaction. This paragraph covers the partner who is still here. Do not use this year's credit to settle a buyout. The buyout belongs in the partnership agreement. The credit belongs in the plan. Mixing them produces a contribution the remaining partner must keep funding after the departing partner has the benefit, because the plan is still the firm's plan.

If one owner wants out of the plan and the other wants to continue, you do not each get a private plan by wishing. You can amend, freeze, or in some cases split plans under the spinoff rules, and each of those paths has vesting, funding, and nondiscrimination consequences. A freeze stops future accruals. It does not send the departing owner a check on Friday. Distribution requires a distributable event. Getting this wrong is a qualification problem, not a scheduling problem.

Compensation above $360,000 does not increase either owner's credit. Both partners can earn more than the cap and still have different illustrative deposits, because age and the benefit limit did the work, not the extra wages. Raising both W-2s in June to "give the plan more room" does nothing once each W-2 already clears the cap, and it does plenty to employment tax. The announcement of these limits is IR-2025-111, November 13, 2025, Notice 2025-67, collected on the IRS cost-of-living page. Last year's cap was $350,000 and last year's benefit limit was $280,000. An illustration prepared on 2025 sticker prices is not a 2026 partnership decision.

A conversation the two of you should have without the spreadsheet

Agree on the purpose before you agree on the dollar. If the purpose is to let the older owner fund toward the $290,000 benefit while the younger owner takes a smaller credit and a larger current draw, say that. If the purpose is to keep the partners economically even after tax, the CPA has to model the firm-level deduction and the personal tax. The plan formula will not automatically equalize after-tax cash. If the purpose is "the largest possible deduction," the limiting facts are the younger owner's 415 constraint, the staff test, the firm's cash, and the deduction coordination rules, not the older owner's ambition alone.

Also agree on the horizon. A cash balance plan is a multi-year funding promise. One partner's enthusiasm and the other's reluctance should be settled before adoption, not during the second year's minimum contribution. The note on plans that are not a fit applies to partnerships more often than to solo owners, because one dissenter is enough to make the funding miserable. PBGC coverage, if you are wondering whether a two-owner plan is automatically exempt, is plan-specific. Many small professional-service plans are exempt. Not all. Headcount of staff, not the number of owners, is what usually decides the professional-service exemption. The PBGC coverage page is the reference. Premiums are a firm cost too.

Physicians, dentists, and law firms run into this pattern constantly because the owners are rarely the same age. The practice pages for physicians, dentists, and attorneys are the sector context. The pension math in this briefing does not change because the degree on the wall changes. What changes is the shape of the staff and the stability of the collections.

What to do in the next two weeks

Each owner should write down an age, a 2026 compensation figure the plan can actually see, a desired credit if you know it, and a sentence about how long you intend to keep the plan. Do not average the ages. Do not average the desires and send the average.

Ask the administrator for two illustrative firm-level results: one with equal dollar credits at the lower of the two maximums, and one with each owner at a credit the actuary believes the benefit limit and a preliminary test can support. Label both illustrative. Compare the staff cost on each. The second picture is usually the one a serious firm adopts. The first picture is the one partners ask for before they have seen the waste.

Confirm whether either owner's 401(k) catch-up must be Roth because 2025 FICA wages exceeded $150,000. Then bring both owners' numbers in one note. A plan for two people that is designed as if they were one person will be redesigned anyway. June is a cheaper month for that than December.