Defined Benefit Pension Plans as well as Cash Balance Plans are generating a lot of interest with medical practices, both large and small.

Medical practices find that these retirement plans are a great way to increase retirement savings and reduce taxes at the same time. As an additional benefit, the plans provide asset protection for doctors. In addition to reducing income taxes, the significant contributions are a great way to catch up if you have not saved enough in the past or if your retirement account balances are down due to market losses during the recent economic turmoil.

Compared to 401(k)s and Profit-Sharing Plans
In 2011, someone under 50 years old can defer $16,500 into his 401(k) account. With matching and Profit Sharing Plan contributions, the total can be increased to $49,000. If the person is over 50, he can defer an additional $5,500.

In comparison, a doctor in his mid 50's could contribute and deduct as much as $200,000 or more in a properly designed Defined Benefit or Cash Balance Plan. This allows you to turbo-charge your retirement savings. You can accumulate upwards of $2.4 million in the plan at age 62.

Exhibit 1

Company Name	ABC Company
First Plan Year End	12/31/2007
Normal Retirement	Age 60
Income Tax Rate	44.0%
Pension Formula	70.0%

Sex	Name	Age	Annual Salary
M	Dr. John Owner	51	$225,000
F	Jane Spouse	50	$25,000
F	Employee 1	28	$57,446
F	Employee 2	41	$47,262
F	Employee 3	48	$65,495
F	Employee 4	31	$83,655
F	Employee 5	28	$37,891
F	Employee 6	43	$34,453
F	Employee 7	24	$17,120

Exhibit 2
Defined Benefit PensionPlan with 401(k)
Profit Sharing Plan - Cross Tested Design

Participant Name	Plan Age	Ret Age	Total Plan Contrib	Total 401(k) Profit Sharing Contribution*	Grand Total Contribution	% of Total
Dr. John Owner	51	60	$235,157	$27,350	$262,507	74.2%
Jane Spouse	50	60	$26,208	$21,350	$47,558	13.4%
Sub-Total			$261,365	$48,700	$310,065	87.6%
Employee 1	28	60	$2,411	$4,308	$6,719	1.9%
Employee 2	41	60	$2,868	$3,545	$6,413	1.8%
Employee 3	48	60	$4,664	$4,912	$9,576	2.7%
Employee 4	31	60	$3,834	$6,274	$10,108	2.9%
Employee 5	28	60	$1,590	$2,842	$4,431	1.3%
Employee 6	43	60	$2,198	$2,584	$4,782	1.4%
Employee 7	24	60	$637	$1,284	$1,921	0.5%
TOTALS			$279,567	$74,449	$354,016	100%

*Includes 3% Safe Harbor, additional profit sharing contribution and $20,500 salary deferral for owner and spouse

Pension Protection Act of 2006
Defined Benefit and Cash Balance plans have become much more popular since the Pension Protection Act of 2006. The Act did several things to make these plans more appealing. First, the Act clarified the legality of Cash Balance Plans. Second, the Pension Protection Act explained how a company, such as a medical practice, might be able to sponsor both a 401(k) Profit Sharing and a Defined Benefit Plan to take advantage of the unique characteristics of each and benefit from the combination of the two. Third, the Pension Protection Act of 2006 (PPA) explained how to cross test the benefits from both types of plans and be able to weight the contributions more heavily toward the professionals/business owners if the demographics were right.

A sample case is provided showing a medical practice where a physician's spouse is employed along with seven employees (Exhibit 1). When a Defined Benefit Plan is added to an existing Profit Sharing Plan, contributions can be significantly increased, while keeping financial obligations to non-owner employees to a minimum (Exhibit 2). A comparison of "before and after" is provided to illustrate improvement of plan design from one year to the next (Exhibit 3).

Exhibit 3
ABC Company - Comparison of Plan Designs

Participant	Previous Year Design	Proposed New Design
Dr. John Owner	$46,000	$262,507
Jane Owner	$4,940	$47,558
Sub-Total	$50,940	$310,065
Employee 1	$5,745	$6,719
Employee 2	$3,781	$6,413
Employee 3	$5,240	$9,576
Employee 4	$6,692	$10,108
Employee 5	$3,031	$4,431
Employee 6	$2,756	$4,782
Employee 7	$1,370	$1,921
Sub-Total	$28,615	$43,951
Grand Totals	$79,555	$354,016

Increase in contribution to Dr. and Wife	$259,125
Increase in total contributions	$274,461
% of increase for Dr. and Wife	94%

Historically, Defined Benefit plans were thought to be fixed and inflexible. The Pension Protection Act brought with it a new funding method that gives rise to a range of funding options. The contributions in the range, from maximum to minimum, are all acceptable and income tax-deductible. With the proper plan design and this new funding method, there can be tremendous year-to-year funding flexibility.

As a result of these changes business owners, such as doctors, can now have larger retirement plan contributions that are income tax-deductible. The plan designs are doctor friendly, allowing a contribution level that fits the needs of the business. This increased funding flexibility can also allow more predictable contribution totals from year to year.

Another important change brought about by the Pension Protection Act is the Inherited IRA. Prior to the Act, in the event of a participant's death, a spouse beneficiary could roll the account into his own IRA, stretch the benefits over his lifetime and pass them on to future generations which provided for the deferral of the income tax for possibly decades. If the beneficiary was a non-spouse, the taxation was either in the year of death or no later than the end of the fifth year following. Taking a lifetime of accumulations and taxing them over a short time was not a good result.

The Pension Protection Act changed this and allows a non-spouse beneficiary to receive this "Inherited IRA" and stretch out the payments in a similar fashion to a spouse, putting non-spouse beneficiaries on a more equal footing. With a high rate of divorce or the possibility that your spouse might predecease you, this is an important change.

Conclusion
If you want to find out if a Defined Benefit Pension Plan or a combination of plans is right for you or if your current plan provides for an Inherited IRA, call OJM Group and speak to one of their Retirement Plan Specialists. You might be very surprised at how a few changes can enhance your retirement and income tax planning.

Terry Allman is a Qualified Plan Expert at OJM Group where he also serves as Co-Director of Wealth Management. Jason O'Dell is a financial consultant, lecturer, author of books for physicians and a principal of the financial consulting firm O'Dell Jarvis Mandell LLC where John Kelly is an investment advisor. They can be reached at (877) 656-4362.