Money Purchase Plan & Professional Corp

[Guest logres]

I have the following scenario and questions and may needs some direction in finding answer(s). TIA.

Scenario

A California Professional Corporation (PC, physicians) has its benefits managed by a C Corporation MSO. The MSO bills and collects on behalf of the physicians. The physicians have an employee contract with the PC. The physicians after paying MSO and billing/collection fees (all percent based) have an hourly rate for wages determined in a variably and non-uniformed fashion in relationship to actual collections. In some situations the hourly rate of wages is subsidized to a significant degree from retained earnings from other physicians (this is approximately 1/3 of physicians subsidizing 2/3 of physicians). In addition to retained hourly wages by some supporting the hourly wages of others there is subsidizing of the 401(K) "employer" match and any residual remaining is disbursed to those physicians having had wages retained.

Now the MSO/PC is moving towards a Money Purchase Plan (MPP). The MPP allows greater "employer" contribution, which under this construct is created by retaining wages that may or may not be heavily subsidized by other physicians, and will create more pressure to "cross-subsidize" amongst physicians.

Apologies in advance for what seems to me a very convoluted plan.

Questions

1. Is this proper?

2. Are there any ERISA issues?

3. Are there any Medicare compliance issues?

4. Are there any issues with the MSO retaining up to a year the retained earnings of physicians that are going to placed sometime in the MPP accounts? Is there a problem with MSO interest generated with this retension of earnings?

regards/tim

[Bill Berke]

In general your plan will work. The internal subsidizing has no effect on the plan because all the plan is dealing with is compensation paid or accrued on the books for the relevant period. I can't speak about the Medicare rules. What I see in your question are a lot of payroll recognition and income tax timing issues which should/must be reviewed in detail by a CPA or tax lawyer.

[Kirk Maldonado]

My understanding is that there are laws affecting sharing of fees. I would make very certain you don't run afoul of those rules. You should retain somebody that is an expert in those areas to help you (and your client) stay out of trouble.

[Guest logres]

Thanks for the replies.

A different twist--does it make any difference whether or not is "true employer" contribution to the MPP or a clearly defined employee deferred compensation that goes into the MPP. In particular, I understand that employer contribution MPP is mandatory; but is an employee deferred compensation mandatory. What I mean is that with/without the MPP employee gets the same compensation--with the MPP allows that amount of compensation to be tax deferred.

Thanks

[Bill Berke]

I don't understand the twist. Perhaps giving an example would clarify your question.

[Guest logres]

Both prior to and after the implementation of an MPP the [hourly] compensation is identical. The difference is that a percent of the compensation is placed into an MPP to avail the tax advantage. There is no employer contribution.

Aside, this is how the company presently creates it's "401K match."

Whether or not there is a 401K or MPP plan the [hourly] compensation is the same. However, under the 401K it is "voluntary" to have this compensation deferred through the 401K match and the MPP is characterized as being "mandatory," despite the fact that there is no employer contribution.

What is additionally very concerning is the fact that the employer retains the deferred compensation as either the 401K match or pending MPP for the maximal time it is allowed to make the disbursement to the employee's account--keeping the interest.

My [limited] understanding of ERISA, 401K, and MPP is that this may be very improper if not illegal?

regards&thanks/tim

[Erik Read]

Without knowing all the details, my best suggestion is to put all the facts in front of an ERISA. When in doubt bring in the attorney's!

My understanding is that MPP Plans haven't been able to have a CODA provision since "Thrift" plans were done away with. I would also question the "keeping" of the interest earned on deferred compensation - that should be placed in the plan as interest. You've definitely got one for the books here!