Penalties If Can't Fund Their Contributions

What are the penalties if someone can't fund their minimum contribution?  It's been awhile since I've been in this situation, so I wanted to be sure what we were looking at.

Thanks in advance

10% excise tax on the unpaid minimum, IRC 4971. There is a second tier tax that can increase to 100% if it remains unpaid.

You must also notify the PBGC of the failure.

On 9/10/2025 at 10:29 AM, C. B. Zeller said:

10% excise tax on the unpaid minimum, IRC 4971. There is a second tier tax that can increase to 100% if it remains unpaid.

You must also notify the PBGC of the failure.

I think I know the answer, but the client is asking if they can take a loan and/or in-service distribution (as allowed by the Plan Document) out of the 401(k) Plan and use that money to fund the Cash Balance Contribution (and for the in-service, potentially pay it back under the 60-day provision).

Is this something that would be allowed?  (Again, I think I know the answer but I want to be sure)

Well, the contribution to the plan must come from the EMPLOYER. So as long as the individual can find an acceptable method to get these funds into the employer's coffers (check with their CPA) shouldn't be any problem. 

27 minutes ago, Belgarath said:

Well, the contribution to the plan must come from the EMPLOYER. So as long as the individual can find an acceptable method to get these funds into the employer's coffers (check with their CPA) shouldn't be any problem. 

Yes, I had already said that to them.  It's the owner of the company who is taking the loan, so I'm guessing they are going to loan the money to the company, but I'll make that point clear to them.