Simple steps for staff retirement plans

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Question: Our pediatric practice is composed of five physicians, two nurse practitioners and 17 other employees. It was established a few years ago. We don't have a retirement plan, but the doctors do contribute to their own IRA accounts, and they report the deductions on their personal income tax returns. Now we are thinking about funding some type of retirement benefit. Do you have any suggestions for us?

Answer: There are many varieties of retirement plans. Being relatively small, your practice doesn't need too many bells and whistles in your plan to have something that allows the physicians to save more on a pretax basis than their IRAs provide.

A defined contribution plan, as opposed to a defined benefit plan, would be a simpler and less expensive plan. A defined contribution plan provides for a fixed amount of contributions to be made each year, while a defined benefit plan requires actuarially calculated annual contributions to provide a targeted future benefit.

Ideally, your plan should allow employees to direct a portion of their salary into the plan, accept a matching of practice dollars and allow discretionary practice contributions.

A SIMPLE IRA is the least expensive plan available. It lets each eligible employee earning at least $5,000 defer up to $10,000 (an additional $2,000 if at least 50 years old) of their income with either employers matching with 3% of salary or an employer contribution for all employees of 2% of salary. There is no discrimination testing or tax filings required, so the administration costs are negligible.