3942 / How much may an employer deduct if it contributes to more than one kind of qualified plan?

An employer that sponsors both a defined benefit and defined contribution plan covering any common participants may deduct no more than the greater of 25 percent of participant payroll paid in the employer’s tax year or the contribution necessary to satisfy the minimum funding requirements for the plan year for any of the defined benefit plans.¹ In the case of employer contributions to one or more defined contribution plans, this limitation applies only to the extent contributions exceed 6 percent of the compensation paid or accrued during the taxable year.²

This combined limit does not apply if the only amounts contributed to the defined contribution plan are elective deferrals ( Q 3752, Q 3753, Q 3760).³ Nonetheless, contributions or benefits may not be deducted in the year of contribution to the extent that they exceed the Section 415 limits ( Q 3719, Q 3728, Q 3868), even if they are required by the minimum funding requirements.⁴ The excess may be deducted in succeeding years as a contribution carry-over, but see Q 3943 for an excise tax on nondeductible contributions. The deduction for current contributions and carryovers in a tax year cannot exceed 25 percent of aggregate compensation
( Q 3750).⁵

For purposes of the deduction limitations, a Section 412(e)(3) (formerly 412(i)) fully insured plan ( Q 3812, Q 3813) is treated as a defined benefit plan ( Q 3735).⁶ In plan years beginning after December 31, 2007, contributions to defined benefit plans insured by the PBGC are excluded from the combined plan limit.⁷