401(k) solutions for healthcare practices of all sizes.

Currently, there’s no federal legislation requiring any employer to offer a retirement plan. However, since 2012, 46 states have either implemented a state-based retirement savings program, studied program options, or considered legislation in order to encourage people to save for their future. Additionally, there are a handful of states that have passed legislation requiring businesses to offer a state retirement plan to their employees if they do not offer another retirement plan such as a 401(k) or 403(b).

A 3(16) fiduciary is a service provider hired by an employer to function as a “Plan Administrator,” by fulfilling a comprehensive set of duties that many plan sponsors find demanding, including keeping the plan in compliance with ERISA guidelines. Overall, the purpose of a 3(16) fiduciary is to take on all or some of the medical practice's fiduciary duties related to plan administration and reduce the administrative hassle involved in managing a 401(k) or 403(b) plan and its assets. 

For example, rather than the medical practice owner having to work through issues like loan and distribution approval, a 3(16) fiduciary may do this for you. Some 3(16) fiduciaries will even handle signing and filing the annual Form 5500 required of many 401(k) and 403(b) plans. Not all service providers are willing to act as a 3(16) fiduciary and the exact 3(16) services provided vary from one provider to the next.

The main difference between 403(b) and 401(k) plans is that a 403(b) plan can only be offered by tax-exempt organizations. These organizations include but are not limited to, public schools, 501(c)(3) institutions, or cooperative hospital service organizations. 

403(b) plans are also exempt from most annual IRS nondiscrimination testing and can offer employees who have worked with a company for 15 years to make additional catch-up contributions of up to $5,000 per year. 403(b) plans may only invest in mutual funds or annuities.

If you are a doctor or physician running a private medical practice, managing a 401(k) or 403(b) plan may seem overwhelming, especially if you don't have dedicated HR support like larger medical institutions. As a small business owner, you have fiduciary responsibilities to your employees, which can be complex and time-consuming to navigate on your own. But you don't have to handle it alone. Providers like Human Interest specialize in helping small businesses, including healthcare facilities, set up and manage their employees' retirement plans.

Medical professionals have numerous 401(k) or 403(b) plan design types and options for employers, including safe harbor provisions, employer matching and profit sharing options, Roth and traditional deferral types, and solo or SIMPLE 401(k) plan designs. The main differences between these plan types are contribution limits, eligibility requirements, and the type of compliance testing required.

In an auto-enrollment setup, newly eligible employees will have a default percentage of compensation contributed pre-tax to their plan from each paycheck unless they opt out. Employers set the default election in the plan document. Starting with the 2025 plan year, auto-enrollment will be required for all businesses with a 401(k) plan effective on or after 12/29/22 as a result of SECURE Act 2.0.

Auto-enrollment is designed to increase employee 401(k) participation rates. According to Vanguard, auto-enrollment plans raised participation by nearly 50% in plans they administered, and tripled participation rates among new hires in plans they oversee.⁵ There is also a tax advantage for private medical practices that offer auto-enrollment. Private practices may be able to claim a tax credit of $500 per year, for up to three years, when adding an auto-enrollment feature to a new 401(k) or 403(b) plan.

To change the provider of your 401(k) or 403(b) plan, contact your new retirement plan provider to help you transfer your assets and restate your retirement plan document. Once you’ve completed the entire transition process, your new 401(k) or 403(b) provider will take over the administration of your retirement plan. Changing your provider may take around two to three months.

Offering a comprehensive benefits package that includes a 401(k) or 403(b) plan can be a powerful tool for attracting and retaining top talent in a competitive industry like healthcare. It helps build a strong and stable team of employees and sends a message that your firm is invested in their future. It also provides tax benefits for both the employer and employees.

Nondiscrimination testing (NDT) is required by the IRS to ensure that 401(k) plans do not unfairly favor highly compensated employees.

If an employer fails nondiscrimination testing, their 401(k) plan may lose its qualified status (although there are steps a business can take to correct failed NDT). At Human Interest, we monitor our client’s status to help them avoid failing nondiscrimination testing if possible. We also offer safe harbor 401(k) provisions, which are specifically designed to exempt employers from some major nondiscrimination tests.

Choosing the right investment options can be overwhelming for healthcare facility owners. One way to help determine the best investment options for your employees is to offer a range of diversified investment options that can help meet different risk tolerance levels. Many 401(k) and 403(b) providers also offer investment advice and resources to help employees make informed investment decisions.