Retirement Plans
Most doctors now know that a retirement plan is the best available tax shelter. And, over the past 37 years, Collier and Associates has prepared thousands of IRS approved retirement plans for our clients.
Collier & Associates can analyze new or existing retirement plans to see what is the best design to meet your particular needs. We typically analyze employee data and compensation levels, as well as the practice owner’s financial goals and objectives in order to recommend the type of plan and the appropriate benefit formula.
All of our retirement plans are designed to meet IRS regulations and legislation. Not only do we set up the original plan, but we maintain it to ensure that it continues to comply with all relevant laws.
Collier sponsors the following approved Regional Prototype Retirement Plans:
- Profit Sharing Plan
- Profit Sharing Plan with 401(k) Elective Deferrals
- Cash Balance Plan
- Money Purchase Pension Plan
- Traditional Defined Benefit Plan
- Target Benefit Plan
Many clients prefer Collier for their practice retirement plan because our fees are fair and we are not affiliated with any brokerage firms, insurance companies or third party administrators. Clients are able to invest their plan assets as they choose and are not tied into limited or expensive investing options.
Unlike most plan providers, Collier does not charge our clients a yearly fee. We only charge for work actually performed, which is minimal in most years, as little or nothing needs to be done to keep the plan current. When the retirement plan laws require that changes must be made, we are able to keep our fees low by doing the same work for a large number of clients at the same time.
Many of our retirement plan clients use our actuarial firm, Pension Advisory Group, Ltd., for plan administration services. PAG specializes in representing professional practices. They understand the issues facing doctors and their spouses and their fees are reasonable.
Below are some samples of retirement plan studies we have prepared for our clients. Whether you are a “younger” or “older” doctor, there should be a plan design that will fit your needs.
401(k) And Cross-Tested Plan Designs Have Become More Attractive: For 2011, the limit is the lesser of $49,000 or 100% of pay. The maximum level of pay we can count in calculating a person’s contribution is $245,000. For 2011, the maximum an employee can have deducted from his or her pay and contributed under a 401(k) plan is $16,500 (+ another $5,500 for those age 50 and over). The impact of those changes is dramatic. Let’s say the doctor’s spouse is on the payroll at $18,500. Under the prior law (pre-2002), the maximum contribution for the spouse was $4,625 (25% of pay). Now, if the plan is a so-called safe harbor 401(k) plan and just 3% is contributed for all participants, the spouse can elect to defer another $16,500 – bringing the total contribution to $17,055. That’s an incredible jump! If the spouse’s compensation is at $49,000 or more, the doctor and the spouse might each get a $49,000 (or $54,500 if age 50+) contributions. Examples follow.
Example 1 – 401(k) Where The Doctor And The Doctor’s Spouse Are YOUNGER Than Their Staff: Age is not used in this plan design because it would work against the doctor by raising the contributions for the older-than-the-doctor staff. The 3% contributed for all participants (col. 1) allows the doctor and spouse to defer up to $16,500 under the 401(k) feature (col. 2). If you stop there (after columns 1 and 2), they will have received 94.1% of the total contribution ($40,905 out of $43,455). If they fund beyond that (column 3), they get $67,304 (their maximum contributions) (column 4). In this practice, the doctor and spouse have 76% of the total compensation, yet they can get 89% of the practice’s total contributions. The staff can also contribute to the 401(k) portion of the plan (col. 2) if any wish to do so out of their own funds.
Safe Harbor 401(k) Plan For 2011
|
Comp |
Age |
(1) 3% Safe Harbor Contribution |
(2) 401(k) Deferral Contrib. |
(3) Soc. Secur. Int. Prof. Sharing Contribution |
(4)
Total |
(5)
% of Pay |
||||
| Doctor |
245,000 |
37 |
7,350 |
16,500 |
25,150 |
49,000 |
20.0% | |||
| Dr’s. Sp |
18,500 |
35 |
555 |
16,500 |
1,249 |
18,304 |
98.9% | |||
| Staff 1 |
25,000 |
53 |
750 |
? |
1,687 |
2,437 + ? |
9.7% + ? | |||
| Staff 2 |
40,000 |
47 |
1,200 |
? |
2,699 |
3,899 + ? |
9.7% + ? | |||
| Staff 3 |
20,000 |
40 |
600 |
? |
1,350 |
1,950 + ? |
9.7% + ? | |||
| Total |
348,500 |
10,455 |
33,000+? |
32,135 |
75,590 |
|||||
| Dr. & Sp. |
263,500 |
75.6% | 7,905 | 75.6% |
33,000 |
26,399 |
82.1% |
67,304 |
89.0% | |
| Staff |
85,000 |
24.4% | 2,550 | 24.4% |
? |
5,736 |
17.9% |
8,286 |
11.0% | |
Example 2 – A Cross-Tested Plan Where The Doctor Is OLDER Than Some, But Not All, Of The Staff: This is a cross-tested plan. It divides the participants into classes. In this case there are two classes: a doctor class (with one participant, age 47) and a non-doctor class (with 5 members ranging in age from 51 to 24).
The Plan Is Greatly Skewed In The Doctor’s Favor – Here the doctor gets the maximum contribution ($49,000) and the staff gets 5%. The doctor has only 66% of the total participant compensation, but gets 89% of the total contribution. This plan design saves over $14,000 in employee costs per year over a traditional plan – that is, one in which age is not a factor.
The Doctor Does Not Have To Be “Old”, Just “Older” Than Most Of The Staff For Cross-Testing To Work – Note that the doctor is only 47, and there is an employee that is older. Younger employees in the non-doctor class neutralize the older participant for non-discrimination purposes.
|
Comparing A Traditional Profit |
(1) |
(2) Cross-Tested |
||||
|
Compensation |
Age |
Contribution |
% of Compensation |
Contribution |
% of Compensation |
|
| Doctor |
245,000 |
47 |
49,000.00 |
20.0% |
49,000.00 |
20% |
| Staff 1 |
35,000 |
51 |
5,769.19 |
16.5% |
1,750.00 |
5% |
| Staff 2 |
30,000 |
39 |
4,945.02 |
16.5% |
1,500.00 |
5% |
| Staff 3 |
25,000 |
36 |
4,120.85 |
16.5% |
1,250.00 |
5% |
| Staff 4 |
20,000 |
29 |
3,296.68 |
16.5% |
1,000.00 |
5% |
| Staff 5 |
15,000 |
24 |
2,472.51 |
16.5% |
750.00 |
5% |
|
|
|
|
|
|
|
|
| Total |
370,000 |
|
69,604.25 |
|
55,250.00 |
|
|
|
|
|
|
|
|
|
| Doctor |
245,000 |
66.2% |
49,000.00 |
70.4% |
49,000.00 |
88.7% |
| Staff |
125,000 |
33.8% |
20,604.25 |
29.6% |
6,250.00 |
11.3% |
Example 3 – The Doctor’s Spouse: If the goal is to maximize the family’s contributions, and the doctor’s spouse (say, 45 years old) can justifiably receive $50,000 in pay, a third class could be created for the spouse (who would get a contribution of $11,780 without raising the employees’ share). In many cases, this can be improved by adding a 401(k) feature – the 5% contributed for staff allows the spouse to add $16,500 under the 401(k) (bringing the spouse’s contribution up to $28,280).
|
Comparing A Traditional |
(1) |
(2) |
||||
|
Compensation |
Age |
Contribution |
% of |
Contribution |
% of |
|
| Doctor |
245,000 |
47 |
49,000.00 |
20.0% |
49,000.00 |
20.0% |
| Dr’s.-Spouse |
50,000 |
45 |
8,241.70 |
16.5% |
11,780.00 |
23.6% |
| Staff 1 |
35,000 |
51 |
5,769.19 |
16.5% |
1,750.00 |
5.0% |
| Staff 2 |
30,000 |
39 |
4,945.02 |
16.5% |
1,500.00 |
5.0% |
| Staff 3 |
25,000 |
36 |
4,120,85 |
16.5% |
1,250.00 |
5.0% |
| Staff 4 |
20,000 |
29 |
3,296.68 |
16.5% |
1,000.00 |
5.0% |
| Staff 5 |
15,000 |
24 |
2,472.51 |
16.5% |
750.00 |
5.0% |
|
|
|
|
|
|
||
| Total |
420,000 |
77,845.95 |
|
67,030.00 |
|
|
|
|
|
|
|
|
||
| Dr & Spouse |
295,000 |
70.2% |
57,241.70 |
73.5% |
60,780.00 |
90.7% |
| Staff |
125,000 |
29.8% |
20,604.25 |
26.5% |
6,250 |
9.3% |
Example 4 – The Highly Paid, Young Doctor In The Practice – Let’s say there is a 32 year old junior doctor earning $125,000. If he or she is an associate and the goal is to provide a minimal contribution, a 4th class can be set up (say, doctors under age 45), and a 3% ($3,750) contribution can be made without reducing the contributions for the owner and spouse. If the young doctor is a partner (now making $150,000) and the goal is a large contribution, that is tougher to accomplish (but might be do-able) without raising the staff costs.
| Comparing A Traditional Profit Sharing Plan With a Cross-Tested Profit Sharing Plan For 2011 |
(1) |
(2) |
||||
|
Compensation |
Age |
Contribution |
% of |
Contribution |
% of |
|
| Doctor |
245,000 |
47 |
49,000.00 |
20.0% |
49,000.00 |
20.0% |
| Dr’s.-Spouse |
50,000 |
45 |
8,241.70 |
16.5% |
13,850.00 |
27.7% |
| Dr.-Associate |
125,000 |
32 |
22,739.92 |
18.2% |
3,750.00 |
3.0% |
| Staff 1 |
35,000 |
51 |
5,769.19 |
16.5% |
1,750.00 |
5.0% |
| Staff 2 |
30,000 |
39 |
4,945.02 |
16.5% |
1,500.00 |
5.0% |
| Staff 3 |
25,000 |
36 |
4,120.85 |
16.5% |
1,250.00 |
5.0% |
| Staff 4 |
20,000 |
29 |
3,296.68 |
16.5% |
1,000.00 |
5.0% |
| Staff 5 |
15,000 |
24 |
2,472.51 |
16.5% |
750.00 |
5.0% |
|
|
|
|
|
|
|
|
| Total |
545,000 |
|
100,585.87 |
|
72,850.00 |
|
|
|
|
|
|
|
|
|
| Dr. & Spouse |
295,000 |
54.1% |
57,241.70 |
56.9% |
62,850.00 |
86.3% |
| Staff & Assoc |
250,000 |
45.9% |
43,344.17 |
43.1% |
10,000.00 |
13.7% |
Cash Balance Plans Permit Huge Annual Contributions For The Older Doctor With The Younger Staff: Cash balance plans allow for the maximum accruals/benefits of any qualified retirement plan. The potential benefits can be very large. The chart below shows the maximum accruals that could be achieved in the first year of a cash balance plan.
|
Age |
Potential First Year Accrual |
|
45 |
$107,000 |
|
50 |
137,000 |
|
55 |
175,000 |
|
60 |
224,000 |
|
65 |
229,000 |
The benefit of the dual plan approach is that it provides flexibility. The cash balance formula is written into the plan document and a change requires an amendment to the plan, which must be done prospectively before employees complete 1,000 hours and earn the larger contribution. The profit sharing allocation is flexible. Each year the contributions to the staff can change in the profit sharing depending upon the amounts necessary to pass the required nondiscrimination testing. The cash balance would not satisfy nondiscrimination testing on its own! (i.e., cannot have only a $94,000 cash balance plan with a 3% allocation to the staff)
The cash balance funding is also less flexible. A cash balance plan requires an actuary to determine the minimum and maximum contributions each year. The minimum contribution determined by the actuary is required to be deposited.
Benefits for owners and the staff are highly dependent upon demographics (age, years of service, and compensation), so if this concept sounds good you should have us run a proposal.
|
Compensation |
Age |
401(k) |
Profit |
Cash |
Total |
% of |
|
| Doctor |
245,000 |
50 |
22,000 |
32,500 |
94,000 |
148,500 |
60.61% |
| Staff 1 |
60,000 |
55 |
? |
3,600 |
1,800 |
5,400 |
9.00% |
| Staff 2 |
55,000 |
45 |
? |
3,300 |
1,650 |
4.950 |
9.00% |
| Staff 3 |
45,000 |
35 |
? |
2,700 |
1,350 |
4,050 |
9.00% |
| Staff 4 |
35,000 |
25 |
? |
2,100 |
1,050 |
3,150 |
9.00% |
| Staff 5 |
35,000 |
21 |
? |
2,100 |
1,050 |
3,150 |
9.00% |
|
|
|
|
|
|
|
||
| Total |
475,000 |
|
22,000 |
46,300 |
100,900 |
169,200 |
35.62% |
|
|
|
|
|
|
|||
| Doctor |
245,000 |
52% |
22,000 |
70.19% |
93.16% |
148,500 |
87.77% |
| Staff |
230,000 |
48% |
? |
29.81% |
6.84% |
20,700 |
12.23% |