We have a physician group that has 15 physicians plus another 5 staff employees. Some of the physicians want to contribute to the plan and others don’t. How can we make a plan work for us?

Your situation is actually not that unique. We deal with large physician groups where some of the physician partners just want to max out the 401k while others are looking to make contributions to a cash balance plan.

When there is a large medical practice with many partners/shareholders there is more complexity to these plans. That being said, they offer the physicians a great opportunity to make large tax deferred contributions.

Most groups will set up the plan with the following structure:

1) They will have a few groups set up with set funding amounts. For example, you would have a $50k group, a $100k group and a $150k group. Physicians who want to contribute will select a group as along as it is compliant.
2) Plans will seek to get covered by the PBGC, which will allow the physicians who want to stick with maxing the 401k the ability to do so. If you don’t do this, certain contributions will be limited.

There are a couple issues that need to be addressed:

(1) Structuring the plan to work for both the physicians who want to contribute and the ones that don’t.
(2) How will you make contributions to staff?
(3) Making sure the plan works with your tax structure.
(4) Is the plan required to be covered by PBCG based on 25 participants or do they want to apply?

Assuming some partners want to just contribute to the 401k and others want to include a cash balance plan, here is how it normally works. This can get a little complex, so I will try to be concise.

Combined plans are limited to a 6% profit sharing match on the 401k or 31% cap on total eligible compensation. Since the partners/shareholders who just want to stick with the 401k don’t want to be bothered by the cash balance plan, you let them contribute to the maximum $57,000 (or $63,500 if over 50).

You then calculate the total eligible compensation, multiply by 31% and then back out the 401k contributions. This will give you the remaining amount that can be contributed to the cash balance plan. Here is an example:

Total eligible compensation – $5,000,000
Multiplied by 31% – $1,550,000
Total Contributed to 401k – $1,000,000
Remaining to be allocated to cash balance – $550,000

With the remaining amount, you just have to divide it up and make sure you stay compliant.

Next, you need to make sure this works in light of your tax structure. Since the cash balance plan contributions are a tax deduction, the ultimate goal for the partners/shareholders is that they get the tax deduction and it is not allocated to other physicians. This can usually be done relatively easily with a C-Corp, but is a little more difficult with an S-Corp or partnership.

So I would want to answer the following questions:

(1) Determine which physicians want to contribute and which just want to stick with the 401k plan.
(2) For the physicians who want to contribute to the cash balance plan, what is an approximate contribution level?
(3) There will need to be a contribution made for some of the non-partner employees. However, it may not be relatively large because they are probably receiving a large contribution through the 401k profit sharing plan.
(4) What is your current tax structure?

I know this can be a little overwhelming. So let us know if we can schedule a call to discuss.