Opportunity – A ten-physician orthopedic practice was maximizing its partner’s retirement contributions but at a very high cost on the back end. GatesMoore was able to identify ways to substantially reduce this cost.
Process – GatesMoore accountants stay on top of the constantly changing regulations that affect retirement plans. By carefully examining the plan documents of its clients they are able to identify opportunities for clients.
Result – The practice has been able to save $250,000 per year in its contributions for its employees, while at the same time reducing administrative costs.
AHA Moment – While not a huge “AHA” for GatesMoore staff, it certainly was for the practice when it was discovered that their plan design was outdated and not taking advantages of changes in the law in this area.
The Story – Without bogging the reader down in tax and accounting details (after all that is why you use a firm likes GatesMoore) suffice it to say that many business advisors and CPAs are simply not versed in the complex rules affecting retirement plans. The not so secret to success for GatesMoore is that they know the law and they review retirement plan documents with a fine toothcomb. While there is not a lot of mystery, there is simply a lot of thorough work.
In this practice, all of the physicians were making the maximum amount of contributions for themselves – $49,000. In order to do this the practice had to meet certain requirements in its obligation to fund their employees’ retirement plans. At the time most employees were receiving a benefit in this area equal to 16% of pay, a figure quite out of balance with industry norms. GatesMoore was able to reduce this to 5%, while still being able to contribute the maximum for each of the physicians.
The practice’s plan design was outdated and it was not taking advantage of recent changes in the law. As a general rule, every participant is required to receive the same percentage of pay in order for plan to be deemed non-discriminatory. Typically this is tested against the actual amount of contributions made to the plan on the front end while applicable law allows you take into account the estimated VALUE when you retire. So obviously you do not need to fund a younger employee’s plan as heavily as you do an older employee’s because the younger employee has more time in which their plan’s funds will grow.
By revisiting the plan design and applying current law, the accountants at GatesMoore were able to reduce the cost of the practice’s employee retirement funding by a quarter of a million dollars annually.