The first thing to keep in mind is that every medical group is unique. The starting point in the discussion of designing a retirement plan for any medical group or individual is to ask a lot of questions. How many employees? How many staff/doctors? What is the age demographics of the group? Are there any part time employees? What is your philosophy?
Some medical groups consist of Dr.’s/owners only, no staff. That model is easy because it allows for maximum flexibility as long as every participant is considered a highly compensated employee (HCE) according to the IRS definition.
Almost certainly the starting point will be a 401(k) plan because this type of plan allows for participant deferrals that are pre-tax or the increasingly popular Roth deferrals. The rest of the plan design will depend on the wishes of the medical group concerning eligibility, vesting, and loans and the demographics of the group.
The use of a cross-tested or new comparability profit sharing allocation formula allows for the maximum flexibility, so this is becoming standard. Whether the plan has to be a safe-harbor 401(k) and if so, the choice of the safe-harbor contribution formula depends on the group. If the plan has to be a safe-harbor plan almost certainly they will want to use the 3% non-elective contribution because, again, this provides for maximum flexibility.
Many medical groups have a number of highly compensated participants that would require a second plan to achieve retirement equity with staff. Such a group would want to use a cash balance or traditional defined benefit plan. A cash balance plan allows for higher contribution to a select group in order replace their income in the same ratio as a 401(k) plan would for staff.
Many medical groups also want to allow any participant to set up a brokerage window that allows the participant or a financial advisor retained by that participant to invest their money. This allows for additional flexibility in the investment vehicles allowed.
The selection of the product and financial advisor and third party administrator are important as well. You’ll want a product that is well established and reasonably priced. You’ll want an investment advisor that you have a comfort level with that you know will service the account look out for your best interests. Finally, a third party administrator can help you select the optimum plan design and help you to follow the many complex rules set by the IRS and DOL.
For more information reach out to Paul Stang at Premier Retirement Partners at 608-827-6008 or email at paul.stang@premiertpa.com.
Paul Stang, J.D., CLU, ChFC is the Principal of Premier Retirement Partners, a third party administration firm with more than 1000 clients. He has a Bachelor of Science degree from the University of Minnesota, Minneapolis and a Juris Doctor (J.D.) degree from Mitchell Hamline College of Law, St. Paul, MN.
He has over thirty years’ experience with ERISA and qualified plans including 401(k), 403(b), and defined-benefit plans. Prior to establishing his own firm, he worked for a regional CPA firm, a trust company and a national life insurance firm.