The possibility of a comfortable retirement at a reasonable age goes a long way toward improving physicians' career satisfaction and loyalty to their medical group.

Groups concerned with physician retention and satisfaction are therefore paying more attention to their retirement plans. According to Robert Master, MD, FACC, pension committee chairman for the 200-physician Camino Medical Group in Sunnyvale, CA., "Around 40 years of age the retirement plan becomes a huge issue to the doctors. Because of the time demands of medical school, residency, and sometimes a fellowship program, they often feel a need to 'catch-up' on retirement savings."

Playing catch-up is a team game; doctors need the medical group to help by designing and adopting a retirement plan that allows for significant pre-tax contributions. This partnership between the group and the physician can aid in cementing the long-term relationship between the two.

What can medical groups do?

Dr. Master shared his group's experience from a couple of years ago, "We undertook a retirement plan redesign process to overhaul the existing plan and see if we could increase the pre-tax contributions physicians could make." Physician groups should similarly examine their plans to see if they are competitive, up to date, and, most importantly, whether they meet the retirement security needs of their doctors.

Here are some of the basics:

• Contributions to these plans are tax-deductible in the year contributed and the tax is deferred until the money is withdrawn.
• Assets in qualified plans are protected from creditors, often a very important feature to doctors.
• Financial experts generally concur that tax-qualified plans should be funded to their maximum before other retirement saving vehicles are employed.

Tax-qualified retirement plans are broadly divided into two categories: defined contribution plans, such as 401(k) plans, and defined benefit plans. Defined benefit plans can be very useful to medical groups, especially because of recent tax law changes. The law now allows for large tax-deductible contributions for doctors—over $150,000 for a doctor over 50 years of age. The most common type of defined benefit plan used by medical groups today is the Cash Balance Plan. These plans can be seamlessly added to a medical group's established 401(k) plan.

While the IRS has granted tax-deferral for all qualified retirement plan contributions, there are limits on any individual's contribution. Contributions to 401(k) plans, for example, are limited to $15,500 annually. If a profit sharing plan is added, the maximum annual contribution becomes $45,000. If a Cash Balance plan is added to these plans, the maximum contribution can climb as high as $250,000 annually, depending on age.

One group's retirement plan-enhancement project

Mid-career physicians at a large California medical group, who made up about one third of the total practice, worried that their current retirement plan did not meet their retirement security needs. The pension committee initiated a retirement plan overhaul with the goal of enabling the physicians to increase their pre-tax contributions. The pension committee invited several pension-design firms to make proposals. Their objective was to find a firm that was knowledgeable about physician group pension issues and could communicate that knowledge clearly and simply.

The pension committee learned from Kravitz about a pension plan called a Cash Balance plan that could be added to the 401(k) and Money Purchase plans already in place. Kravitz's addition of the Cash Balance plan almost doubled contribution amounts made for physicians over 40 to an average of about $75,000 annually. Some of the older physicians are seeing contributions as high as $125,000.

Non-shareholder doctors, nurse practitioners, and other mid-level providers were also included in the plan at varying percentages of pay. Staff contributions went from 4% of pay to 6% of pay in order to pass IRS nondiscrimination testing. All employees in the medical group benefited from the enhancement of the retirement plan.

While not every group's redesign process will result in the same changes, many groups can benefit by taking advantage of Cash Balance plans.

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