For many physicians, participating in a tax-qualified retirement plan is the single most important factor in achieving their retirement objectives. Yet, while most physicians participate in some form of retirement program, many fail to optimize funding opportunities. The rules and regulations governing these tax-qualified plans are constantly evolving. In recent years, several significant changes have created new planning options. One challenge for physicians is to understand that plan design should evolve as well. This requires a review of current retirement plan design and an evaluation of new opportunities available which might assist in meeting individual needs and to ensure attainment of financial goals. Because plan contributions are tax deductible and the earnings on plan assets are not subject to taxation while in the plan, there is a financial incentive to maintain such a plan. To attain financial goals, implement the "3 Rs" as part of the overall retirement plan objectives: Revisit, Reevaluate, Redesign. Revisit Revisit the terms, conditions and funding provisions of your existing plan documents. Determine current funding levels and costs for physicians and staff. Evaluate employee demographics. Factors such as employee age, compensation levels and turnover affect funding costs. Determine desired level of contributions for the physicians. Differing objectives of other physician members of the practice may affect plan design as well. Ask if the current plan design will permit physicians to meet their long-term financial goals. Reevaluate If long-term goals may not be met with current design or if a reduction in staff costs is desirable, changes should be considered. With the new options available, in many cases, physicians who are generally satisfied with their current contribution levels can maintain and or increase contribution levels while lowering overall staff cost. In others, the addition of supplemental tax qualified plans can result in a doubling of physician contributions with a nominal increase in staff cost. Redesign The following are some of the design options available that have been successfully used by physician practices. 1. Consider the addition of cash or deferred provisions, also known as 401(k) provisions, to your profit sharing plan. Such provisions allow each participant to determine the amount to individually contribute (free from federal taxation but subject to FICA and Medicare contributions) up to $15,000, plus an additional $5,000 per year in catch-up contributions if the participant is age 50 or older. To avoid annual compliance testing and to ensure the physicians' ability to maximize the individual salary reduction contribution levels, the plan sponsor may adopt safe harbor provisions requiring matching contributions equal to 4 percent or non-elective contributions equal to 3 percent of each employee's annual compensation. These designs permit physicians to contribute up to $28,000 annually for a staff cost of around 3 percent of employee compensation. Additional discretionary contributions can also be added to these plans to increase funding levels. 2. Modify your profit sharing plan to provide "cross-tested" allocation of contributions rather than allocating contributions solely on compensation ratios. While non-discrimination testing still applies, cross-testing calculations allow classification of participants into different groups. Each group receives a different contribution level. This method permits physicians within the same practice greater flexibility in order to address differing financial goals within the same group. 3. For physicians who are interested in significantly increasing contributions, special types of pension plans known as cash balance plans can be adopted in addition to the existing profit sharing/money purchase plan. If properly designed, the amount of total contributions in both plans for the physicians could more than double, resulting in total contributions in excess of $80,000 with minimal additional cost for staff employees. A cash balance plan is a hybrid plan combining characteristics of a defined contribution plan (profit sharing plan) with a defined benefit pension plan. Each participant's account is credited with a set allocation (a percentage of compensation or a fixed dollar amount) and an "earning credit" (an assumed investment return, i.e., weighted average of the 30-year Treasury rate established as of the first day of each plan year). Similar to the cross-tested plans, a cash balance plan provides different designated classes and different levels of contributions for each class. By aggregating the contributions and benefits of the cash balance plan with existing plans, it is possible to greatly enhance the benefit for physicians with minimal additional employee costs. These strategies are simply examples of some of the current available options. You should review your own plan annually with your advisers to consider if the design that may have been followed for years still meets personal and practice objectives. Jack Levy is a partner with Blach & Bigham, LLP.