The 415(b) limit on a defined benefit plan is the lesser of a dollar amount, $290,000 for 2026, and 100% of your high-3 average compensation. The high-3 period is the three consecutive calendar years in which your pay from the business was highest, and each year's pay is capped at that year's compensation limit.
For an owner paid above the cap for years, the 2026 high-3 average is $351,667, so the dollar limit binds instead. For lower earners, pay is the real ceiling. With a high-3 average of $150,000, the plan can never pay more than $150,000 a year, which lowers the lifetime maximum and shortens the number of years of large contributions.
Pay from years before the plan existed counts, as long as it came from the same business. With fewer than three years in the business, the average uses the years you have. The pay limit is also phased in by service: it is reduced by a tenth for each year short of ten years with the business, and service before the plan started counts toward those ten.
What counts as pay depends on the business: W-2 wages for S and C corporation owners, earned income for sole proprietors and partners. For a corporation, the salary paid by December 31 fixes that year's figure. See how much you can contribute.