Jump to content

Medical Group Compensation


Recommended Posts

3 doctors are incorporated, and own XYZ Corporation that employes their staff and pays other shared expenses (rent, etc.) The doctors do not owns any other businesses or practices.

Each doctor's corporation receives income from patients. The doctors' corporations reimburse XYZ for expenses, and pay themselves W2 salary from their own corporation. The staff receives W2 from XYZ.

The doctors want to have a pension plan that covers the 3 doctors and the staff.

Would the plan be sponsored by XYZ, and base benefits on doctor's W2 salaries from their own corporations and the staff W2 salaries from XYZ.

Or, would the doctors have to become employees of XYZ and receive W2 salaries from XYZ. (In this case, would the patient revenue continue to be paid to the doctor's corporation and then paid to XYZ, which would then pay the doctor a salary? Or would the patient revenue have to be paid directly to XYZ, which would thgen pay the doctor a salary?)

Any ideas? What is typical?

Link to comment
Share on other sites

If XYZ sponsors the plan and each doctor's business adopts the plan as a participating employer, as Lorraine Dorsa describes:

1. How would the contribution and deduction work? Would a contribution be made to the fund and deducted by XYZ for the staff employees. And would each doctor make a contribution to the fund and deduct that amount for his/her business?

Or would all contributions be made (and deductions taken) by XYZ?

2. Would there be 1 5500 filing using the EIN of XYZ, or 4 separate 5500 filings, each with the EIN of the sponsor or participating employer?

What is normally done? (Or is there a "normally"?)

Link to comment
Share on other sites

Each entity makes the contribution for their employees (and takes the deduction).

Unless assets are held in separate pools for each of the participating employer (technical issue, unlikely to be the case), a single Form 5500 is filed.

------------------

Link to comment
Share on other sites

  • 2 weeks later...

Followup on this situation.

The mechanics of this will work as Lorraine Dorsa describes (thanks, Lorraine). One plan. Each business entity adopts it. One asset pool. One 5500.

It turns out this is going to be a new comparability profit sharing plan. (I guess I should have posted this in that thread.) 401(a)(4) testing is easy.

Is the 15% of payroll contribution maximum applied for each business entity separately, or for the entire plan in the aggregate. In other words, if the contribution for each doctor is 20% of his/her pay and the contribution for each staff employee is 5% of his/her pay, and the total contribution turns out to be less than 15% of everyone's pays (doctors plus staff), is the entire contribution deductible?

Link to comment
Share on other sites

The 15% maximum deductible limit in a profit sharing plan is in the aggregate--the deductible amount for the plan = [sum of compensation of all participants eligible for an allocation] times 15%.

So as long as the contribution for any participant does not exceed his 415© limit (lesser of 25% of compensation or $30,000) and the total contribution to all participants does not exceed the maximum deductible amount above, the total contribution is deductible.

------------------

Link to comment
Share on other sites

It seems to me your situation is a classic affiliated service group. I'd recommend you look at the 1.414m regs, especially 1.414m-3c on deductions. I thought that the 404 deduction limit was applied per separate employer entity, without any aggregation. Allocations of the contributions would be made without regard to the source of the money. Other comments on this?

Link to comment
Share on other sites

RHP raises an interesting point.

Assuming we have an affiliated service group and not a controlled group:

1.414(m)-3©(1) indicates that "the plan will be considered to be maintained by more than one employer for purposes of ... 413©(6) (relating to deductions)."

Now, 413©(6) indicates that for plans maintained by more than one employer, the deduction limits under 404(a) apply to each employer separately.

That seems to imply that the 15% limit applies to each doctor separately, which is what RHP suggests (which is what I'd like to avoid, though).

However, I observe that the last sentense in 1.414(m)-3©(1) concludes that "Therefore, a member of an affiliated service group may deduct contributions on behalf of individuals who are not employees of that member, if the individuals are employed by another member of that affiliated service group." I don't understand how this conclusion is reached in the regulation. But, assuming the conclusion is valid, can it be used so that if Doctor Smith contributes 25% of his pay to the profit sharing plan but can only deduct 15% of his pay, XYZ Corporation could deduct the remaining 10% of his pay, as long as the 15% limit isn't violated by XYZ Corporation? (In other words, the 10% of Doctor Smith's pay plus the contribution for XYZ's staff employees cannot exceed 15% of XYZ's staff employees' pay.)

Link to comment
Share on other sites

I have always read the sentence you quoted in 1.414m-3c1 to mean that a member of an affiliated service group could contribute and deduct amounts on behalf of another member of the group. It has to make the contribution. Amounts it contributes could be allocated to persons employed by another member of the group though where contributions are allocated without regard to the employer making the contribution.

Link to comment
Share on other sites

Let's put some numbers into this situation.

Doctors Smith, Jones and Williams each earn $100,000. XYZ Corp has 10 employees, each earning $20,000. The total payroll of the affiliated service group is therefore $500,000.

Doctors Smith, Jones and Williams each pay for the expenses of XYZ Corp, based on some allocation method (e.g., use of staff, supplies, rent, etc.).

Under the profit sharing plan, contributions of 20% of each doctor's pay will be made ($20,000 for each doctor, or a total of $60,000), and 3% of the pay of each of the employees of XYZ ($600 for each employee, or a total of $6,000). A grand total of $66,000 would be contributed, which is less than 15% of $500,000. (Stated differently, $66,000 would be contributed in total, and allocated $20,000 to each doctor and $600 to each staff employee.)

I would like to have each doctor contribute (and deduct) $20,000, and XYZ would contribute (and deduct) $6,000. This is the approach suggested in Lorraine Dorsa's message. However, I'm concerned about RHP's point about the 15% of pay limit applying to each doctor.

To solve this:

How about each doctor contributing (and deducting) $15,000, for a total of $45,000. XYZ would contribute $6,000 for its employees and $5,000 for each of the three doctors, for a total of $21,000. A grand total of $66,000 would still be contributed.

Each doctor would deduct $15,000 (under IRC 404). Each doctor would also reimburse XYZ for $5,000 (deductible to each doctor's corp as a business expense, and not under IRC 404). XYZ would take $15,000 into income, and deduct $21,000 (under IRC 404).

Note that XYZ could deduct under IRC 404 the full $21,000, since $21,000 is less than 15% of its payroll of $200,000, and the $21,000 applies to its own employees and employees in the affiliated service group.

Does this (complicated) approach solve the problem? Is this necessary (or overkill)? Or have I missed something?

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...