Menu

White.Beard.Doc

Home White.Beard.Doc Replies Created

White.Beard.Doc
Message me
You have new message! White.Beard.Doc

Forum Replies Created

  • White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016
    Splash Refinancing Bonus

    Sorry to hear of your financial struggles.  At the same time it is great that you are on the forum and seeking advice.  And next year sounds like your situation is going to improve 100%.

    Don’t despair, hunker down and know that things will be better in the future if you make a few small, good decisions to get things going in the right direction.

    in reply to: refinance vs forbearance #241088 Reply
    Liked by Lordosis, Peds
    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    Thanks Tim, the basic resources regarding defined benefit plans on this forum and on the bogleheads forum are fairly basic.  The rules for these plans get complex with funding requirements and non-discrimination rules.  So clearly we would need sophisticated advice.  At the same time, I like to learn as much as possible, to be an educated layperson to make reasonable decisions.

    For example, the pension consultant that spoke to us this week is AUM compensation for the defined benefit portion of the plan, and he mentioned putting life insurance inside the plan.  From this thread I learned that all types of compensation models and asset allocations including self directed are allowed.  I also learned that life insurance inside the plan is fully optional.  Finally from some of the other threads on the various forums I learned that a conservative asset allocation with lower risk during the funding phase is recommended by many experts.

    Any other thoughts or advice are appreciated.  I am generating a list of questions for next week’s meeting.  We are also going to talk with our CPA, our TPA and other pension consultants to get a variety of opinions.

    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    Does anyone know of any reliable resource to learn a bit more about defined benefit plans?

    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016
    Earnest refinancing bonus

    Either I’m misunderstanding, or you’re misunderstanding.

    Highly compensated employees are already maxing their elective salary deferral to the 401(k) plan you have stated. Additional contributions to the 401(k) plan have to come either from employer match/profit sharing, or if from the employee they would only be voluntary after-tax contributions which I don’t believe is what anyone here is talking about.

    Therefore, when you say the highly compensated employees would have additional deferral space, those funds must be going into the cash balance plan, which would make sense. I don’t believe a cash balance plan only for the owner, with 100% exclusion of employees is possible. You should clarify with the consultant.

    Click to expand…

    The pension consultant said that in addition to the employer contribution, the employee could request an additional contribution from their own pay.

    Example:

    Base pay 300k

    Elective employee deferral 19k

    Employer contribution 30k

    Employee wants to shelter an extra 100k on top of the other contributions, so the employer reduces base pay to 200k, then makes an extra 100k contribution to the profit sharing plan.  What seemed funny is the consultant said that a 300k employee married to a 700k spouse working for another entity could elect to contribute the majority of their salary in this way by lowering their base pay and taking all that extra compensation in a profit sharing contribution.  Even though the pension consultant said that is possible based on the contributions for all of the non-HCE employees getting generous contributions and passing all fairness testing hoops, I have never heard of something that allows that level of contribution above the limit of 56k for younger employees and 62k for older employees.  What the pension consultant said is not making sense to me.  I have a follow up call with them next week to ask for further clarification.

    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    You don’t have to contribute the max amount for you that is allowed. You can define the benefit to a lower amount. If your projections have you ending up with too much in pretax.

    So the contributions for HCEs come from their comp, not from you the employer? Question, what if returns in the plan are lower than projected, and additional contributions have to be made to make up the shortfall? Is such makeup contributions also going to come from each HCEs comp, or from you? If from their comp then they need to understand this clearly from the outset and document so in writing. You don’t want surprises or “I didn’t know this could happen.”

    I would think HCEs May also deserve a chance to see what sort of investment is happening in the plan, if they were expected to fund makeup contributions in the case of lower than projected returns.

    Click to expand…

    The HCEs are currently getting 25 or 30k in contributions from the employer to the base 401k/profit sharing plan.  They are also electing to contribute 19k or 25k elective salary deferral.  So on average around 50k in total contributions for the HCEs. Each employee gets to elect which Vanguard funds they want to invest in, stocks, bonds, international or target date.  The most common election, also the default, is target date through Vanguard.  The annual cost to the employees is perhaps about 8 bps in fund fees(0.08%) as the employer pays all other fees.

    The pension consultant recommended perhaps reducing contributions for the HCEs just a bit since they would have no limit on their elective deferrals, but that is optional and not necessary.

    The defined benefit plan would only be for the owner as this would be a combination plan only for the owner. The HCEs would already have as much deferral space as they desire through the 401k profit sharing plan.  I need to confirm that feature as it doesn’t pass the smell test, but that is what the consultant said.

    If returns in the defined benefit plan are lower than expected, then higher contributions could be needed later, so that is why the consultant recommended lower risk investments during the funding phase.  However, this would not affect the employees. The owner would simply shift more personal taxable income to the cash balance plan.  Also, the pension consultant said these contribution amounts could be adjusted yearly within a fairly wide band for the defined benefit plan.

    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    Interesting article. To me it seems that work life balance has become much more important not only to the young women, but also to many of the young men in medicine.  I also see some of the young men taking a much greater role in caring for family and children than in the past.

    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    You might be decent candidate for a defined benefit plan at work.  The tax savings can be substantial.  No need to pay an asset under management fee instead of a moderate fixed annual fee (paid by your business as a necessary expense and not reducing money put into the DB plan).

    Fund the DB plan aggressively early.  Be able to add more money if the market severely contracts and your actuary and third party administrator say you need to kick in more money.

    I wasn’t terribly impressed with the stable value funds that were the default position for our defined benefit plan.  Like Molar Mechanic, we went with Vanguard balanced (VBIAX).  We have contributed far, far more than the minimum required by our employee census for the last few years.  In the unlikely event that we’re called upon to kick in a good chunk more cash to keep the actuary and the Department of Labor happy, we almost certainly will be buying at fire-sale prices.

     

     

    Click to expand…

    Yes, the current income tax savings are very substantial with the proposed defined benefit plan.

    But, the future taxes could be higher on the back end with RMDs at whatever the income tax rates are when taking those RMDs.  Using this defined benefit plan could also lead to higher taxes for the estate, depending on future estate tax exemptions and rates.

    Pay now or pay later.  Psychologically, I feel like the money in our taxable accounts belongs to us, whereas the money in our tax deferred accounts is shared ownership, me and my partner, my great Uncle Sam.

    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    Lots to chew on there that I cannot help with.

     

    DB plan has been great for me.  If my biggest problem in 20 years is too much in pre tax dollars, then I’m ok.  My plan was already in place when I became a partner, so I didn’t have a voice in its design or implementation.

     

    Our plan was initially with an advisor who changed a fee to assign the assets in a 60/40 allocation in highish fee funds, while using a separate TPA.  When I got involved, we kept the TPA but moved the assets into a custodial account with vanguard.  Vanguard simply holds the funds.  Since we have a pooled fund, we agreed to put it into 100% VBIAX, which is Vanguards 60/40 fund.

     

    Both of of our wives are employees of the practice, and both are HCE, which allows them a significant DB plan contribution as well.

    Click to expand…

    Yes, of course there are worse problems than too much in tax deferred, but when you have a long career earning more than you need and factor in potential longevity, the projected numbers start getting quite large with the tax deferred. Who knows what estate tax rates will be in the future, but if we pay lots of taxes now and invest in taxable rather than tax-deferred, that could lead to avoidance of future estate taxes. Estate tax exemptions are very likely to change, so its merely a guessing game.

    As far as low cost pension plans, in the past we switched over our safe harbor/401k/profit sharing plan from a low cost to a very low cost record keeper holding vanguard funds.  It sounds like I could self direct a defined benefit plan with vanguard funds as well to keep fees as low as possible.

    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    Design should give you figures for a percentage of total assets going into the plan that go to you, total percent going to NHCEs, total percent going to HCEs. Obviously from your perspective the greater percent going to you the better.

    DBP certainly does not require a manager getting an AUM fee. That could be a very hefty fee. I’d demand a flat fee, or even handle it myself, especially if the great majority of funds in the DBP pool are yours anyway.

    Click to expand…

    Thanks!  It sounds like management of the funds in a DBP can be managed with various fee structures, including self managed. That information is very helpful.

    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    One of the reasons that this business has been extremely successful is generosity to the employees, contributing to hard working, happy staff and low turnover.

    This outside pension plan consultant slaps his forehead and shakes his head when he sees our current plan’s design with generous early vesting, our generous contributions to all employees both HCE and non-HCE, and the fact that the owner has not designed the plan for maximum personal benefit, but rather for great benefit to all employees.

    It seems like a new combination plan along with slightly higher contributions for non-HCE’s would allow the business to continue to be generous with all of the employees, a core philosophy of the company and a primary goal.  It would also allow all of the HCEs the optional flexibility to defer very large sums which is not an option with the current plan design, up to their entire compensation. (Is that correct? It sounds a bit crazy, but that is what the consultant said to us, giving the example of a 300k employee married to an even more highly compensated spouse.)

    And finally, it will allow the owner to save 46% in income taxes on additional contributions over time, allowed in the defined benefit plan, significant savings in taxes.

    It seems like our next best step is to consult with additional pension experts to learn more before making a decision.  But it would also be good to get this started in 2019 for the substantial tax savings that are available this year.

    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    I would recommend you stay 5 to 10 years ahead of yourself with the coverage limit on your umbrella policy.  Meaning a new doc with minimal assets should have 1M in coverage.  By the time your net worth gets to 1M you should have already upped your umbrella coverage to 2-3M.

    in reply to: Timing of Umbrella Insurance #240619 Reply
    Liked by RocDoc, gasdoc86
    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    Did you look at BankRate.com to see what is being advertised for your type of loan?  The rate you get will depend on location, loan to value, new purchase or refi, and more.  A ballpark target is easy to get, but in the end, the details matter for the rate you will get.

    The last time we got a mortgage, we used Chase private banking to qualify for discounts from the market rates.  We had cash and Vanguard investments of over 1M held through Chase, so they gave us a 2.625% jumbo when market rates were over 3%.  They also keep the loan in their in-house portfolio as a benefit for their good customers and give you cashback for direct checking deduction mortgage payments.

    Do you have any special relationship with a banking institution with these types of benefits?  I remember there was an extensive thread on bogleheads regarding all of the banks that do this for their relationship customers.  When we were starting out, we did not have the kind of investments to qualify for these discounts, but later career we did.

    in reply to: Mortgage Refinance rates – Whats the best out there?! #240007 Reply
    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    Our group spends 7 figures annually for malpractice insurance.  We considered starting a captive, but the risks are high in the early years and the benefits seemed to accrue later.  It sounded fairly risky and we instead negotiated a very cost effective special group policy with a large, state backed malpractice insurance company, saving us a lot of money.

    in reply to: Captive Insurance Company #240003 Reply
    Liked by TheDude
    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    That is a funny question.  If I am in the 1% by income and I spend a lot, I will never make it to the 10M net worth of the 1%.

     

    in reply to: The 1% #240001 Reply
    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    I was reading a bit more about the Unison company that offers this cash in exchange for partial ownership of your home.  The example given was that they give you 10% of the current value, and when you sell they get 40% of the gain.  There are also a bunch of hoops to jump through when you make any improvements in the property, requirements regarding how you have to maintain the home to satisfy your co-investor, and under certain circumstances they get to select the appraiser to determine how much you owe them.  Appraisals are no better than educated guesswork and subject to significant high/low manipulation, particularly with more unique properties.

    To me, this sounds like a horrible idea, but of course, to each his own.

     

Notifications Mark all as read  |  Clear