Is a Defined Benefit/Defined Contribution Combo Plan Right for Your Physician Practice?

Is a Defined Benefit/Defined Contribution Combo Plan Right for Your Physician Practice?

January 30, 2016

In our blog series, “The Best Retirement Plans for Medical Groups,” we have been examining the options available to physicians and their pros and cons. Choosing the right retirement plan is especially important for physicians because of their above-average compensation. The first step in making such a crucial decision is understanding what the options are.

The most popular retirement plans that doctors establish in their practices are:

  • Defined Benefit Pension Plans
  • 401(k) Plans
  • Defined Benefit/Defined Contribution Combination Plans
  • Cash Balance Plans

Last week, we covered 401(k) plans for physicians. This week, we’ll cover the strengths and weaknesses of Defined Benefit/Defined Contribution Combination Plans plans.

What is a Defined Benefit/Defined Contribution Combination Plan?

Businesses are allowed to combine a Defined Benefit Plan and a Defined Contribution Plan. These “hybrid” plans combine the features found in both kinds of plans and are in reality two different plans working in tandem.

As a result, businesses and employees enjoy the benefits of both kinds of plans. The business gets tax deductions for making contributions to the plan, and as a qualified plan under ERISA, the employee’s pension gains asset protection from bankruptcy creditors and has the opportunity to grow tax-deferred.

How Much Can a Business Owner Save?

These plans are popular with older business owners who need to make up for lost time in saving for retirement. Hybrid plans substantially increase the amount that can be saved towards retirement compared to a stand-alone DC plan.

With the Pension Protection Act, many plans now allow owners an additional contribution of up to 6% towards the DC plan, on top of the normal $18,000 ($24,000 for those over 50) allowed. Compared to a stand-alone DB plan, they reduce the cost to the employer considerably, as some plans include a DB plan for owners and only a DC plan for employees. There are various types of combination plans, each especially suited for different kinds of situations.

How To Decide Which Plan is Best

The plethora of retirement plan options available can be confusing and intimidating. When choosing a retirement plan for your medical practice, it is always important to work with a qualified financial professional who can help you navigate the complexities and find the plan that is best suited to your needs.

A knowledgeable professional can provide an analysis of the costs and benefits of each plan and help you make this important decision. If you are interested in learning more about the different retirement plan options and which one is best for your practice, contact me today at 480.494.8992 or by email at Stay tuned for our next blog post covering the pros and cons of Defined Benefit/Defined Contribution Combination Plans for physicians.

About Kenny Phan

Kenny Phan is a Managing Partner at FinancialFocus Retirement Plan Services, a 3(16) fiduciary. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses in the greater Phoenix area, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.