Glossary.

The words that come up when you open a cash balance plan, each in a sentence or two.

A

Actual return crediting: A way of crediting interest in a cash balance plan where your account earns exactly what the plan's investments earn, gains and losses alike.

Cash balance plan: A defined benefit pension plan that shows your benefit as an account balance, which grows each year by a pay credit and an interest credit.
Catch-up contribution: An extra 401(k) elective deferral allowed from age 50, with a larger amount at ages 60 to 63. Cash balance plans have no catch-up.
Combined deduction limit (404(a)(7)): A cap on deductions when one business funds both a defined benefit plan and a 401(k) or SEP. In practice it holds profit sharing to 6% of pay.
Compensation limit (401(a)(17)): The most pay a retirement plan may count for any one person in a year: $360,000 for 2026.
Controlled group: Businesses under common ownership that the tax code treats as one employer, so the employees of one count as employees of the others.
Cushion: Extra room above a plan's funding target that a business may deduct, generally 50% of the funding target, so it can fund ahead in good years.

Defined benefit plan: A retirement plan that promises a benefit at retirement, funded by the employer, with the contribution worked out each year by an actuary.
Defined contribution plan: A retirement plan with an individual account worth what goes in plus what it earns, such as a 401(k), a profit-sharing plan or a SEP IRA.

Earned income: For a sole proprietor or partner, the pay a retirement plan counts: net self-employment earnings less half of self-employment tax and plan contributions.
Elective deferral: Pay you choose to put into a 401(k) instead of taking it as cash. Cash balance plans have no deferrals; only the business contributes.
Enrolled actuary: An actuary licensed by the federal Joint Board for the Enrollment of Actuaries to sign pension valuations. Every defined benefit plan needs one.
ERISA Title I: The part of federal pension law with fiduciary, disclosure and Labor Department reporting rules. A plan covering only an owner and spouse sits outside it.

Form 5500-EZ: The annual return for a one-participant retirement plan, due once plan assets pass $250,000 and always in the plan's final year.
Funding target: The present value of the benefits a defined benefit plan has already promised: what the plan should hold today to be fully funded.

High-3 average compensation: Your average pay over your three highest-paid consecutive years with the business. A defined benefit plan cannot pay a yearly benefit above it.

Interest credit: The growth a cash balance plan adds to your account each year: a fixed rate, a rate tied to bond yields, or the plan's actual investment return.

Lump sum: Your whole cash balance account paid out at once, at retirement or when the plan ends. It can be rolled into an IRA to stay tax-deferred.

Maximum deductible contribution: The most a business can put into a defined benefit plan and deduct for the year, as calculated by the plan's enrolled actuary.
Minimum required contribution: The least the business must put into a defined benefit plan for the year, due within 8½ months after the plan year ends.

Normal cost: The present value of the benefit a defined benefit plan expects you to earn this year: the cost of one more year of accrual.
Normal retirement age: The age the plan names for paying the full benefit. One-person cash balance plans often use 62, the earliest age the IRS treats as reasonable in every case.

Pay credit: The amount a cash balance plan adds to your account each year under its formula, separate from the interest credit.
Plan administrator: The person responsible for running a retirement plan and its filings. In a one-person plan it is usually the owner, not the provider.
Plan sponsor: The business that sets up a retirement plan, adopts its document, funds it and deducts the contributions.
Plan year: The 12-month period a plan keeps its books on. Limits, valuations, contributions and filings are measured by it, and most solo plans use the calendar year.
Pre-approved plan document: A plan document whose wording the IRS has already reviewed, which a business adopts by completing and signing an adoption agreement.
Preservation of capital: The rule that a cash balance benefit, when paid, can never be less than the total pay credits made to the account, whatever the investments did.

Qualified business income (QBI) deduction: A federal deduction of up to 20% of profit from a pass-through business. Retirement contributions reduce it, and at higher incomes can restore it.

Schedule SB: The enrolled actuary's signed yearly report on a defined benefit plan's funding. One-person plans prepare and keep it rather than file it.
Section 415(b) limit: The cap on what a defined benefit plan may pay: a yearly benefit of up to $290,000 in 2026, or 100% of high-3 average pay if that is lower.
Section 415(c) limit: The yearly cap on what can go into a person's 401(k), profit-sharing and SEP accounts with one employer: $72,000 in 2026.
Segment rates: Three interest rates, set by how far off a payment is, that the IRS publishes monthly for valuing pension benefits and setting contributions.
Specified service trade or business: A business built on professional services such as health, law or consulting. Its owners lose the QBI deduction at higher incomes.

Trustee: The person who holds a plan's money in trust and controls its investment account. In a one-person plan, the owner is the trustee.

Answer a few questions about your business to see what you could put away this year and what it would save you in tax. About three minutes.