In that time, we have also consulted with hundreds of medical groups on how to implement such strategies for their practices. Unfortunately, these consultations too often turn out to be less than fruitful because of office politics.
Planning gridlockTypically, while the younger members of the group are very motivated to reduce their income taxes, the older doctors are often uninterested. Either they are already so close to retirement that they don't need extra retirement planning or they are simply set in their ways and don't want to change anything — the old "if it ain't broke, don't fix it" mindset. The result: planning gridlock.
Unfortunately, for the younger physicians, the long-term costs of such gridlock are significant. They will have to work more years to reach the same retirement goals as their older partners. Gone are the "golden days" of medicine. These new times demand more creative planning.
Nonetheless, each year we meet with hundreds of motivated doctors who cannot implement the planning we recommend because the powers that be in their group won't allow it.
We decided to write this article to suggest some alternatives to this dilemma:
You should consider using non-qualified retirement plans, in addition to your typical qualified pension or profit-sharing plan. That is because while tax and ERISA-qualified plans require the participation of virtually all employees, non-qualified deferred compensation plans (NQPs) can be offered to select employees.
In this context, this means that only certain physicians need participate — even if it means only one or two out of a large group.
Applying this to the common scenario described above, the younger physicians could participate in such a plan and let the older, uninterested doctors opt out.
Furthermore, when compared with qualified plans, NQPs are typically much easier and less expensive to implement.
In this way, even if a few physicians decide to implement a NQP for their practice, they could personally cover all plan expenses themselves — so their partners truly have no out-of-pocket costs. One would think that this fact alone would eliminate any gridlock.
Still, NQPs do not win automatic approval. Because they are at least partially deductible for the practice, they must usually be formally adopted by the corporation or limited liability company (LLC). This requires the proper legal paperwork.
Furthermore, compensation accounting may need to be adjusted to make sure that each doctor not participating is in the same position he or she was in before the plan was in place. Nevertheless, these adjustments are easy for the attorney and/or accountant to implement ... if they are pushed hard enough by you, the client. After all, if Fortune 500 companies can adopt such plans for their executives, the corporate inertia from a relatively tiny medical group should not be insurmountable.
In the end, then, NQP adoption typically succeeds or fails depending on the effort by the motivated physicians. When hundreds of thousands, if not millions, of retirement dollars are at stake, this extra effort will be handsomely rewarded.
A more flexible structure
Despite the availability of NQPs, we still see medical groups stuck in planning gridlock. Another way to solve this problem is to alter the practice's legal structure so that it allows individual physicians their own planning flexibility.