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Different Types of Retirement Plans Available to Medical Practices

Different Types of Retirement Plans Available to Medical Practices

June 06, 2022

As an entrepreneurial physician running a practice, one hat you will wear is human resources, and one component employees are looking for is a retirement plan. Conveying the importance of the plan is critical to making sure you are getting the full value from the plan. Do the employees participate and understand the company contribution on their behalf? As the financial planner to numerous medical practice sponsored retirement plans, we often explain the virtues of planning for retirement, matching, tax deferral, and investments to staff.


The balance to selecting a plan is to control costs, maximize owner benefits, and have the plan seen as a true benefit to working for the group. There are three main types of plans we utilize for small groups.


We have all heard of a 401k plan. These allow employees to defer a portion of their income for retirement either pretax or after tax in a ROTH contribution. The group has the option to match employee contributions and set a vesting schedule that rewards long term employees and minimizes costly turnover. There is some reporting required for a 401k and that is done by a Third-party administrator (TPA).


A scaled down option is called a SIMPLE IRA, which requires less administration but also reduced flexibility. The contribution limit is slight lower than a 401k and the matching is mandatory with no vesting schedule, meaning anything put in from the group is immediately the employees if they terminate.


Lastly, a pension plan called a defined benefit or cash balance plan can be tremendously beneficial, especially to high earning physicians with smaller or no staff on payroll. These contributions can be in the six-figure range, especially if starting later in your career. These plans do not work as well in large practices with a high staff to physician ratio where the employer contribution would be so high as to cancel the benefits.


A financial advisor with experience in selecting the appropriate plan can add value to your offering as an employer to attract and retain high quality staff.