This article was co-authored by Jeff Bramschreiber, CPA, partner at our affiliate Wipfli LLP.
The COVID-19 pandemic created a stressful environment for everyone planning for retirement.
The U.S. has seen savings upended, jobs lost and an economy struggling to find its footing in a new environment. Healthcare workers particularly experience the added stress of caring for sick individuals while trying to protect themselves and their families from getting ill.
Many studies have shown that stress can be a key contributor to lower productivity and confidence in the workplace. A study conducted in January 2020 by the Employee Benefit Research Institute (EBRI) was released in April. This 30th annual Retirement Confidence Survey1 reported that six in 10 American workers felt stressed preparing for retirement. As you might imagine when they resurveyed in March of this year, worker’s confidence dropped in key areas, such as taking care of basic expenses, covering medical expenses and having enough money to last their entire lives.
So … what’s the solution?
As a practice owner, what role can you play in resolving the problem? How can you help give your employees a better retirement?
In the study from EBRI noted above, eight in 10 workers would like education on how to manage competing financial priorities, and even a greater share want help with retirement savings targets. A first step towards making a real, positive difference for your staff could be sponsoring a workplace retirement plan. Beyond providing your staff with a platform to save for retirement in a tax-efficient account, the right retirement plan can bring tangible personal and business advantages, as well.
Finding the right fit
Once you’ve made the decision to implement a retirement plan, the next question becomes: Which type of plan makes the most sense for my practice?
While there are many types of plans to choose from, some of the most common options used by practice owners include the Simplified Employee Pension (SEP) plan, the Savings Incentive Match Plan for Employees (SIMPLE) — both of which are variations of the IRA — and the 401(k) plan. We’ve provided a side-by-side comparison of these plan types below:
|SEP IRA||SIMPLE IRA||401(k) plan|
|Who is it for?||Self-employed individual or small practice owner, including owners with employees.||Practices with fewer than 100 employees that do not currently sponsor other qualified retirement plans, such as a 401(k) plan or a cash-balance plan (viable for owners who want employees to make their own deferrals into the plan).
|Appropriate for businesses who want maximum flexibility in plan design and contribution levels.|
|What are the advantages?||Can be a viable option for an owner with very high compensation and very few employees they must contribute for.||Can provide owners with the benefits of a salary deferral plan with little administration.||1) Can offer greater flexibility in plan design; owners have the ability to structure a profit-sharing contribution within their 401(k), which potentially allows for an extra $37,500 of income that can be saved into the plan each year.
2) Will often allow for the highest tax-deferred savings, which can be appealing to physicians or practice owners in higher tax brackets.
|How much can you contribute?||1) Only funded by contributions made by the practice owner.
2) Requires a flat contribution rate for all eligible employees up to 25% of pay that is deposited into an IRA (maximum of $57,000 for 2020).
|1) Funded by both employee deferrals and contributions made by the practice owner.
2) Annual deferral limit is $13,500 (2020), plus an additional catch-up contribution of $3,000 for those age 50 and older.
1) Funded by both employee deferrals and contributions made by the practice owner.
2) Annual deferral limit is $19,500 (2020), plus an additional catch-up contribution of $6,500 for those age 50 and older.
Remember that the retirement plan you choose isn’t the “end-all-be-all”; your needs will likely change as your practice and workforce grow, which could warrant a transition to a new type of plan.
One additional option to consider is a called a cash balance pension plan. This type of retirement plan provides owners the opportunity to save above and beyond the 401(k) limits. These contributions are often based on age and compensation of staff and provide a nice opportunity for additional tax-deferral opportunities. It’s also important to note these plans come with additional risks to the owner, required contributions, investment risk and are more expensive to administer, among others.
It’s crucial to enlist the guidance of a qualified, professional advisor who can facilitate the selection process and help you find the plan that works best for your practice. While we’re on the topic ….
Choosing an advisor
Deciding which retirement plan to implement is only one piece of the puzzle; it’s also important to ensure your plan is managed and designed to deliver the best-possible benefits to your employees and practice. This is also where the support of an experienced, knowledgeable provider can come into play.
We previously covered top questions to ask when looking for a financial advisor. Here are some additional questions to keep top of mind when interviewing potential providers:
“What is your approach to designing my plan?”
From a design perspective, your provider should come to the table with suggestions and ideas about how to structure your retirement plan so that it’s well-positioned to help you meet your goals. You should expect the team to put together plan-design illustrations that can properly convey the overall plan expenses, how much tax you will be able to save and how much the plan will cost you in contributions for non-owner employees, among other factors.
“What level of service do you provide to plan sponsors and participants?”
Outside of technical knowledge, your team of professionals should spend ample time explaining their service approach and process, as well as the resources they can provide both to your practice and to your employees. When retirement laws and deferral limits change, your provider should be proactive in scheduling meetings with you to re-evaluate plan design and determine whether your current arrangement still makes sense.
“Are you a fiduciary?”
This level of personalized service, support and transparency also extends to the individuals advising on the investments that make up your plan. As a physician, you uphold the duty to provide high-quality, well-conceived care to your patients. Similarly, the advisor who oversees the investments in your retirement plan upholds their own duty to you and your employees: to serve as a fiduciary and to act solely in your collective best interests when making recommendations on behalf of the plan.
Be sure that the provider you choose states, in writing, that it is legally bound to serve as a fiduciary to your plan. Additionally, your provider should be highly involved in educating your employees to help them make the right selection of investments, given their risk tolerance, retirement time horizon and goals. The provider should make it easy for employees to select a well-diversified, low-cost investment portfolio, and be available to meet with them one-on-one to answer questions about the investment program.
Analyzing your plan and needs
Finding the right retirement-plan provider does require due diligence and research, but it isn’t an undertaking you need to shoulder on your own. There are resources available to assist you in finding a provider with the experience and tools necessary to help you fulfill your fiduciary responsibilities and ensure that your plan and processes are compliant.
For instance, Wipfli and Wipfli Financial offer a complimentary retirement plan analysis service that benchmarks practice owners’ current plan fees, costs, investment options and more (if you currently do not have a plan, we can assess your needs as well). You may also visit the U.S. Department of Labor’s website for a complete list of the actions expected of retirement plan fiduciaries, under the law.
Tax advantages, talent retention — benefits abound for practice owners that choose to sponsor a workplace retirement plan. But perhaps the most fulfilling and rewarding outcome of the decision is directly connected to your employees. By sponsoring a retirement plan, you have the opportunity to enrich the lives of the staff members who care for your patients, drive your mission and help keep the practice running every day.
Find out how you can further enhance the health of your medical practice.