# Defined benefit freeze and DB-to-DC conversion costing

Canonical: https://finbryn.com/us/services/actuarial-services/db-to-dc-conversion-plan-freeze

Finbryn provides costing, projections and participant impact schedules for sponsors freezing a defined benefit plan or moving to a 401(k) or cash balance design, prepared for the plan's enrolled actuary and ERISA counsel. Checked 2026-10-16: a section 204(h) notice is due at least 45 days before the effective date, and PBGC's 2027 flat premium is $116 per participant.

A freeze is a plan amendment with a calendar attached. Stop accruals on a date and four clocks start: the notice to participants, the funding and PBGC obligations that keep running, the accounting entry for the curtailment, and the replacement benefit you build beside it. It looks like a cost question, but most of the money turns on timing.

Finbryn builds the comparison the board and the plan's enrolled actuary need. It shows employer cost under an open plan, a soft freeze, a hard freeze and each replacement design, what every participant keeps and what the new contribution adds, the premium and minimum funding paths, and the accounting entry. We also assemble the inputs counsel needs for the notice: the benefit formula before, the formula after and the effective date.

The signatures belong to others. The amendment is the sponsor's, with counsel. The notice goes out from the plan administrator. The plan's enrolled actuary signs funding certifications such as the Schedule SB attached to Form 5500, due July 31 for a calendar-year plan. Finbryn supplies the figures, drafts no legal notice and gives no legal or investment advice.

Here is a dated example. For a calendar-year plan frozen effective January 1, 2027, the section 204(h) notice has to be provided on or before November 17, 2026, 45 days earlier. A plan the administrator reasonably expects to have fewer than 100 participants with an accrued benefit gets 15 days, which is December 17, 2026. Miss it and the cost isn't only a penalty: for an egregious failure, participants get the greater of the benefit with or without the amendment. The sections below cover the designs, the notice, the yearly cost, the accounting and the signatures.

Governments with retiree health benefits can read about [GASB 75 valuation](/services/actuarial-services/gasb-75-opeb-gasb-101-valuations) support.

What you get: Scenario costing for an open plan, a soft freeze, a hard freeze and a replacement design; Participant impact schedules showing earned benefits and replacement contributions; PBGC premium and minimum funding projections under each scenario; Accounting impact schedule for the curtailment or past service cost; Data file for counsel's section 204(h) notice: formulas before and after, and the effective date

Software we work in: Microsoft Excel, Python

How filing works: We prepare the return and the working papers. A credentialed signer or licensed partner signs and files it, or you file it yourself.

## What is the difference between a hard freeze, a soft freeze and a DB-to-DC conversion?

The Bureau of Labor Statistics describes a hard freeze as a plan that no longer lets current participants accrue additional benefits, and a soft freeze as a change to the prospective benefit formula that limits or ends future accruals. A conversion is a freeze plus a replacement: a 401(k) with an employer contribution, or a cash balance formula that credits a pay credit and interest. The BLS fact sheet was last modified May 7, 2024.

PBGC's premium form asks about both pieces. Item 15 records whether participation is closed to new entrants, and Item 16 records the nature of any accrual freeze in five categories: pay and service both frozen for all participants, both frozen for some, service frozen but not pay for all, service frozen but not pay for some, or another type (2026 premium instructions).

| Design | What stops | What continues | Source |
| --- | --- | --- | --- |
| Participation freeze | New entrants join the plan | Existing participants keep accruing | [PBGC Item 15](https://www.pbgc.gov/sites/default/files/documents/2026-premium-payment-instructions.pdf) |
| Soft freeze | Part of the future accrual, such as service credit | Benefits tied to pay or to a smaller formula | [BLS](https://www.bls.gov/ebs/factsheets/defined-benefit-frozen-plans.htm) |
| Hard freeze | All future accruals for current participants | Benefits already earned; funding and PBGC filings | BLS, PBGC Item 16 |
| Conversion | The old formula's future accruals | Earned benefits, plus a new 401(k) or cash balance credit | BLS, 26 CFR 1.411(b)(5)-1 |

## What notice does a freeze require, and what happens if it is late?

An amendment that significantly reduces the rate of future benefit accrual in an applicable pension plan needs a section 204(h) notice at least 45 days before its effective date (26 CFR 54.4980F-1, Q&A-9). A plan that the administrator reasonably expects to have fewer than 100 participants with an accrued benefit on the effective date gets 15 days, and so does an amendment adopted in connection with an acquisition or disposition. Applicable plans are defined benefit plans qualified under Code section 401(a) or 403(a) and individual account plans subject to the section 412 funding rules. Governmental plans and church plans with no election aren't covered.

The notice goes to each participant and alternate payee whose accrual is reasonably expected to be significantly reduced. For a reduction in the rate of future accrual it must describe the benefit formula before the amendment, the formula after it and the effective date (Q&A-11).

The penalty is an excise tax of $100 for each day in the noncompliance period for each applicable individual (Code section 4980F(b)). No tax applies to a failure corrected within 30 days when the employer used reasonable diligence, and the tax for unintentional failures is capped at $500,000 for the employer's taxable year (section 4980F(c)). Separately, ERISA section 204(h)(6) turns an egregious failure into a benefit rule: participants are entitled to the greater of the benefit with or without the amendment (Q&A-14).

The timeline shows a calendar-year plan frozen on January 1, 2027, with the notice deadline first and the PBGC and Form 5500 dates after.

Diagram: Calendar for a calendar-year plan frozen on January 1, 2027. Five dates: the 204(h) notice deadline on November 17, 2026, the freeze on January 1, 2027, the PBGC filing on October 15, 2027, Form 5500 on July 31, 2028 and contributions on September 15, 2028. (Illustrative.)

## What does a freeze cost and save each year?

A freeze stops new accruals, so the plan's target normal cost falls toward zero. Three things keep running and one starts.

- **Minimum funding continues.** The deadline for a plan year's minimum required contribution is 8 1/2 months after the plan year ends, and a plan with a funding shortfall in the preceding year owes quarterly installments on the 15th day of the 4th, 7th and 10th plan months and the 15th day after the plan year ends (26 CFR 1.430(j)-1).
- **PBGC premiums continue.** The flat rate is $111 per participant for plan years beginning in 2026 and $116 for 2027. The variable rate is $52 per $1,000 of unfunded vested benefits, capped per participant at $751 for 2026 and $783 for 2027 (PBGC, last updated October 14, 2026). Filing continues through the plan year in which a trustee is appointed, the plan merges away, coverage ends or assets are distributed in a standard termination.
- **Administration and the audit continue.** Valuations, the Form 5500 and the accounting disclosures don't stop on the freeze date.
- **The replacement benefit starts.** A DC contribution is new cost, inside the 2026 limits of $72,000 for annual additions and $24,500 for employee deferrals (IRS Notice 2025-67).

The illustrative plan below has 250 active participants, 400 participants in all and covered pay of 20,000 ($000). Check: 1,100 + 650 + 44.4 = 1,794.4 and 0 + 650 + 44.4 + 800 = 1,494.4, a difference of 300.

| $000, illustrative | Open plan | Hard freeze plus 4.0% DC |
| --- | --- | --- |
| Target normal cost (5.5% of pay) | 1,100 | 0 |
| Shortfall amortization, assumed unchanged | 650 | 650 |
| PBGC flat premium, 400 participants at $111 | 44.4 | 44.4 |
| Employer DC contribution (4.0% of 20,000) | 0 | 800 |
| Annual employer cost | 1,794.4 | 1,494.4 |
| Change from freezing | | (300) |

The example leaves out the variable-rate premium, administrative expense, transition credits and the effect of the freeze on the shortfall schedule. Those belong in the real model.

## How does the accounting change when a plan is frozen?

A freeze is a curtailment under US GAAP. FASB Statement 88 defines a curtailment as a significant reduction in, or an elimination of, defined benefit accruals for present employees' future services. The Codification carries this guidance in Subtopic 715-30 behind a login, so we cite the Statement.

Paragraph 12 treats the unrecognized prior service cost tied to service that is no longer expected to be rendered as a loss. Paragraph 13 nets any change in the benefit obligation against unrecognized net gains or losses. Under paragraph 14 a net loss is recognized when a curtailment is probable and the effects are reasonably estimable, and a net gain when the plan suspension or amendment is adopted. In an illustrative case, 200 of unrecognized prior service cost relating to service that will never be rendered becomes a 200 loss before netting.

IAS 19 reaches the same event by a different route. Past service cost, including the effect of a curtailment, is expensed at the earlier of the amendment or curtailment and the related restructuring or termination cost (paragraph 103), and the net liability is remeasured with current assumptions (paragraph 99). The [IAS 19 and ASC 715 comparison](/guides/ias-19-vs-asc-715-employee-benefits) sets the two side by side. We prepare the entry and the disclosure schedule for the signing actuary and your auditor.

## What replaces the benefit, and how do we compare the options?

The benefit already earned stays. Code section 411(d)(6) says a plan doesn't satisfy the section if an amendment decreases a participant's accrued benefit, and an amendment that eliminates an early retirement subsidy or an optional form of benefit for earlier service is treated as a reduction. So the comparison is about future service.

| Replacement | What the participant sees | Employer cost driver | Limit to check |
| --- | --- | --- | --- |
| Employer 401(k) contribution | An account balance that moves with markets | The contribution rate on covered pay | 2026 annual additions limit of $72,000 |
| Cash balance formula | A hypothetical account credited with pay and interest | Pay credits plus the funding of the plan | Interest crediting rate can't exceed a market rate of return (26 CFR 1.411(b)(5)-1(d)) |
| Reduced future accrual | A smaller monthly benefit at retirement | The remaining normal cost | 2026 annual benefit limit of $290,000 |

Our impact schedules show, for sample ages and service lengths, the frozen benefit, the replacement contribution and the projected account at retirement age. See [cash balance and defined benefit plan valuation support](/services/actuarial-services/cash-balance-defined-benefit-plans) for the design side. The mix of employer and employee deferrals is a payroll question as well, covered under [benefits administration support](/services/payroll-support/benefits-administration-support).

## What does the enrolled actuary sign, and when?

ERISA funding items go to the plan's enrolled actuary. The Schedule SB attached to Form 5500 is prepared and signed by the plan's enrolled actuary, and the PBGC premium filing carries an enrolled actuary's certification of the variable-rate premium unless the plan is multiemployer, exempt or capped (2026 premium instructions, Item 21). The adjusted funding target attainment percentage certification is made by the enrolled actuary too.

Finbryn prepares the data checks, projections and schedules for that review. The engagement letter names who signs each item. The accounting numbers for a curtailment follow the other route: a credentialed signing actuary reviews and signs them, and your auditor tests them.

The notice, the plan amendment and any certification are reviewed and signed by the people the law requires. A freeze also touches the sponsor's other filings, such as the summary of material modifications, which counsel handles.

## The process

1. **Collect the plan document, last valuation and census**: Gather the plan and amendments, the latest funding and accounting valuations, participant data and the PBGC premium filing.

2. **Set the scenarios with the sponsor**: Agree the cases to cost: open plan, soft freeze, hard freeze, and each replacement design with its contribution rate.

3. **Project cost and cash flows**: Run minimum funding, PBGC premiums and replacement contributions year by year for each scenario.

4. **Build participant impact schedules**: Show earned benefits and replacement benefits for sample ages and service, and the list of participants who will receive the notice.

5. **Hand counsel the notice inputs**: Provide the formulas before and after, the effective date and the applicable-individual list; counsel drafts and the administrator sends.

6. **The enrolled actuary reviews and signs the funding items**: The plan's enrolled actuary signs the Schedule SB, premium certification and any funding certification that applies.

7. **Deliver the board and auditor package**: Provide the cost comparison, the curtailment entry and disclosure schedule, and the assumptions memo.

## Common problems we fix

| The problem | How we fix it |
| --- | --- |
| The board sees the saving, not the costs that stay | The scenario table separates what stops, what continues and what starts, with PBGC and funding lines shown in each year. |
| Nobody has a list of who must get the notice | We build the applicable-individual list from the census and reconcile it to payroll, so counsel works from one file. |
| The effective date sits too close to the notice date | We count back from the 45-day or 15-day rule and show the latest workable effective date for the calendar. |
| The replacement 401(k) contribution doesn't replace what the plan would have paid | Impact schedules compare the frozen benefit plus the new contribution with the old formula at sample ages. |
| The accounting entry surfaces after the quarter closes | We estimate the curtailment entry in the same model as the cost comparison, so the controller sees it at the decision. |

## By the numbers

| Figure | What it means | Source |
| --- | --- | --- |
| 45 days | Minimum advance section 204(h) notice of an amendment that significantly reduces future accruals (15 days for plans with fewer than 100 participants who have an accrued benefit) | [ecfr.gov/current/title-26/section-54.4980F-1](https://www.ecfr.gov/current/title-26/section-54.4980F-1) (2026-10-16) |
| $100 a day | Code section 4980F excise tax for each applicable individual for each day of a missed notice, with a $500,000 cap for unintentional failures | [govinfo.gov/link/uscode/26/4980F?link-type=html](https://www.govinfo.gov/link/uscode/26/4980F?link-type=html) (2026-10-16) |
| $116 | PBGC single-employer flat-rate premium per participant for plan years beginning in 2027 ($111 for 2026) | [pbgc.gov/employers-practitioners/premium-filings/rates](https://www.pbgc.gov/employers-practitioners/premium-filings/rates) (2026-10-16) |
| $72,000 | 2026 limit on annual additions to a defined contribution plan under Code section 415(c) | [irs.gov/pub/irs-drop/n-25-67.pdf](https://www.irs.gov/pub/irs-drop/n-25-67.pdf) (2026-10-16) |

## Glossary

- **Hard freeze**: An amendment after which current participants no longer accrue additional benefits under the plan.

- **Soft freeze**: An amendment that changes the prospective benefit formula so that future accruals are limited or end for some or all participants.

- **Applicable pension plan**: For section 204(h), a defined benefit plan qualified under Code section 401(a) or 403(a), or an individual account plan subject to the section 412 funding rules; governmental plans and most church plans are outside it.

- **Section 204(h) notice**: The written notice an administrator must give before an amendment that significantly reduces the rate of future benefit accrual takes effect.

- **Applicable individual**: A participant or alternate payee whose rate of future accrual is reasonably expected to be significantly reduced by the amendment.

- **Curtailment**: A significant reduction in, or elimination of, defined benefit accruals for present employees' future services, as FASB Statement 88 defines it.

- **Protected accrued benefit**: The benefit a participant has already earned, which an amendment can't decrease under Code section 411(d)(6).

- **Unfunded vested benefits**: Vested benefits not covered by plan assets, the base on which PBGC charges its variable-rate premium.

- **Target normal cost**: The present value of benefits expected to accrue under the plan in the plan year, for minimum funding purposes.

## Frequently asked questions: Defined benefit freeze and DB-to-DC conversion costing

**Q: What is the difference between a hard freeze and a soft freeze?**

A: In a hard freeze current participants stop accruing additional benefits. In a soft freeze the prospective formula changes so that future accruals are limited or end, for example by stopping service credit while pay increases still count. The BLS fact sheet (last modified May 7, 2024) uses those definitions, and PBGC's 2026 premium form asks the plan to report the date and kind of freeze.

**Q: What notice is required before freezing a pension plan?**

A: A section 204(h) notice, at least 45 days before the effective date, or at least 15 days for a plan expected to have fewer than 100 participants with an accrued benefit (26 CFR 54.4980F-1, checked 2026-10-16). It must describe the formula before, the formula after and the effective date. For a January 1, 2027 freeze, the 45-day deadline is November 17, 2026.

**Q: What does it cost to convert a defined benefit plan to a 401(k)?**

A: The answer is a comparison, not a price: the target normal cost that stops against the employer contribution that starts, with funding and PBGC costs running on either way. In our illustration, freezing a 5.5% of pay accrual and adding a 4.0% contribution saves 300 on covered pay of 20,000 ($000). Fees for the analysis depend on plan size and data quality, and Finbryn quotes after seeing a data sample. PBGC's 2027 flat premium of $116 per participant (page updated October 14, 2026) stays in the cost on either path.

**Q: Do PBGC premiums stop when we freeze the plan?**

A: No. PBGC's 2026 instructions say filing and payment continue through the plan year in which a trustee is appointed, the plan merges away, coverage ends or assets are distributed in a standard termination. The flat rate is $116 per participant for plan years beginning in 2027 (PBGC, updated October 14, 2026).

**Q: Does a freeze reduce benefits participants have already earned?**

A: It can't reduce the accrued benefit. Code section 411(d)(6) says a plan fails the section if an amendment decreases a participant's accrued benefit, and treats removing an early retirement subsidy or an optional form for earlier service as a reduction (statute text, checked 2026-10-16). A freeze changes future accruals only.

**Q: Is the notice period shorter in a sale of a business?**

A: Yes. A section 204(h) amendment adopted in connection with an acquisition or disposition needs notice at least 15 days before its effective date, with exceptions for later notice in the regulation (26 CFR 54.4980F-1, Q&A-9, checked 2026-10-16). Counsel should confirm which rule applies to the deal.

**Q: Who signs what in a freeze?**

A: The plan's enrolled actuary signs funding items such as the Schedule SB, due with Form 5500 on July 31 for a calendar-year plan, and certifies the PBGC variable-rate premium. Counsel and the plan administrator handle the amendment and notice. Finbryn prepares the projections, schedules and notice inputs for that review.

Related services:
- [Cash balance and defined benefit plan valuation support](https://finbryn.com/us/services/actuarial-services/cash-balance-defined-benefit-plans)
- [Pension risk transfer and plan termination support](https://finbryn.com/us/services/actuarial-services/pension-risk-transfer-plan-termination)
- [ASC 715 pension and OPEB accounting valuations](https://finbryn.com/us/services/actuarial-services/asc-715-pension-opeb-valuations)
- [Pension asset-liability and cash flow studies](https://finbryn.com/us/services/actuarial-services/pension-asset-liability-cash-flow-studies)
- [Benefits administration support](https://finbryn.com/us/services/payroll-support/benefits-administration-support)

Related guides:
- [2026 retirement plan limits, PBGC premiums, actuarial rates](https://finbryn.com/us/guides/retirement-plan-limits-actuarial-rates-2026)
- [IAS 19 vs ASC 715: Employee Benefit Accounting](https://finbryn.com/us/guides/ias-19-vs-asc-715-employee-benefits)

## Sources

1. [26 CFR 54.4980F-1, Notice requirements for certain pension plan amendments significantly reducing the rate of future benefit accrual, eCFR](https://www.ecfr.gov/current/title-26/section-54.4980F-1) (2026-10-16)
2. [26 U.S.C. 4980F, Failure of applicable plans reducing benefit accruals to satisfy notice requirements, GovInfo](https://www.govinfo.gov/link/uscode/26/4980F?link-type=html) (2026-10-16)
3. [26 U.S.C. 411, Minimum vesting standards, GovInfo](https://www.govinfo.gov/link/uscode/26/411?link-type=html) (2026-10-16)
4. [26 CFR 1.430(j)-1, Payment of minimum required contributions, eCFR](https://www.ecfr.gov/current/title-26/section-1.430(j)-1) (2026-10-16)
5. [PBGC, Premium rates (last updated October 14, 2026)](https://www.pbgc.gov/employers-practitioners/premium-filings/rates) (2026-10-16)
6. [PBGC, premium filing instructions for 2026 plan years](https://www.pbgc.gov/sites/default/files/documents/2026-premium-payment-instructions.pdf) (2026-10-16)
7. [IRS Notice 2025-67, 2026 cost-of-living adjustments for retirement plan limits](https://www.irs.gov/pub/irs-drop/n-25-67.pdf) (2026-10-16)
8. [Bureau of Labor Statistics, Defined benefit frozen plans (fact sheet)](https://www.bls.gov/ebs/factsheets/defined-benefit-frozen-plans.htm) (2026-10-16)
9. [FASB, Statement No. 88: Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (pre-Codification)](https://storage.fasb.org/fas88.pdf) (2026-10-16)
10. [IFRS Foundation, IAS 19 Employee Benefits (published text, 2026 issued edition)](https://www.ifrs.org/content/dam/ifrs/publications/html-standards/english/2026/issued/ias19.html) (2026-10-16)
11. [26 CFR 1.411(b)(5)-1, Reduction in rate of benefit accrual under a defined benefit plan, eCFR](https://www.ecfr.gov/current/title-26/section-1.411(b)(5)-1) (2026-10-16)

Reviewed October 2026

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