Health Care Law Blog

Supplemental Retirement Plan Considerations for Health Care Managers

For health care managers, there are a number of available options and strategies to consider when planning for retirement.  In addition to traditional employer plans, an exempt health care provider may also offer supplemental plan options to its managers and highly compensated employees.  Taking advantage of such benefits may prove to be a wise investment decision for health care managers.

As an initial planning strategy, health care managers should maximize current contributions to their employer's 403(b) retirement plan.  In 2012, individuals may defer up to $17,000 of salary as an elective deferral.  An individual who is 50 years old or older may defer another $5,500 as a catch-up contribution, for a total deferral of $22,500 per year.

After maximizing 403(b) contributions, health care managers should consider making contributions to their employer's 457(b) plan, if one is offered.  Participants may defer up to $17,000 of salary per year to a 457(b) account.  The contributions can be accumulated tax free until retirement.  The employer's 457(b) plan may pay interest on the account balance as it accumulates or it may allow the participant to select a mutual fund or other investment account to generate investment earnings while it accumulates tax free.  The only drawback in contributing to a 457(b) plan is that participants' accounts will be subject to the employer's creditors' claims until the account is distributed to the participant.

Additionally, a 457(f) plan may be established by a tax exempt employer to provide compensation in amounts that exceed 457(b) plan limits.  The disadvantage of a 457(f) plan is that the participant's account is subject to forfeiture if the participant quits working for the employer, is terminated before retirement or otherwise fails to fulfill the service requirements outlined in the plan.  These features detract from the desirability of this type of plan, but it is frequently used when the manager anticipates retirement within10 years.

It is not unusual for health care employers to work with their managers to provide an annual incentive bonus arrangement that can be used as the source of income to be contributed to these plans.  By maximizing 403(b) contributions and contributing to a 457(b) plan, a health care manager (age 50 or older) may defer up to $39,500 of salary each year until retirement.  Additionally, contributions may be made under a 457(f) plan.  Choosing to maximize contributions to such plans, if available, will greatly assist a health care manager in financing his or her retirement.

These plans are also beneficial to the health care employers.  They assist employers who are terminating pension plans in providing adequate retirement plans for managers.  Split dollar life insurance plans are also available, but recent changes in their tax treatment have detracted from their usefulness.

For more information on this important topic, please Jack Siebers at 616-796-2501 or by using the form below.

Categories: Employee Benefits, Employment, Hospitals, Physicians, Retirement