Retirement Benefits Program for Medical Practice

Profile

Private medical practice with four doctors that experiences steady growth.

The Challenge

The practice added employees to the point that its Simplified Employee Pension (SEP) plan became too costly in terms of contributions to employees relative to the amount the doctors were contributing for themselves.

The Objectives

After taking a comprehensive look at the current plan and learning about the doctors’ needs and goals,

  • Find a way to reduce the ratio of contributions to employees relative to the physicians’ contributions
  • Keep plan costs as low as possible
  • Make Roth contributions available
  • Satisfy discrimination testing
  • Simple administration

The Solution

We designed a Safe Harbor Match 401(k) Plan with Profit-Sharing to replace the SEP plan and added a Roth 401(k) account. That allows the doctors to make salary deferrals of their own income and match up to 4 percent of their income on those contributions.

We set up the 401(k) plan, selected a record-keeper for the practice, assisted with investment selection, and will assist with communication and support going forward. The practice experienced a variety of benefits:

  • Estimated 45% first-year reduction in plan costs
  • The Safe Harbor Match opened up the option for each doctor to make personal income deferrals up to the maximum (plus catch up if age 50 or over), resulting in less reliance on an across-the-board profit-sharing contribution to meet personal savings goals
  • Adding the Roth account option created a new method for the doctors to leverage their retirement savings dollars by being able to contribute the personal income deferrals on an after-tax basis and enjoy tax-free growth going forward
  • Plan costs are reduced by implementing a one-year plan entry eligibility window and three-year cliff vesting schedule on the profit-sharing contributions to recoup forfeiture dollars from short-term employees

Since the plan was designed under Safe Harbor provisions, discrimination testing is satisfied.

Leave a reply