Medical practices: the staff math that makes or breaks a design

A medical practice does not get a different Internal Revenue Code from a consulting firm. It gets a harder census. The physician-owner's desired deduction is often large, the clinical staff is often long-tenured, and a second entity sometimes employs the people the professional corporation does not. The design lives or dies on that math. It does not live or die on the phrase "doctors can put away more." Some physician-owners can support a cash balance plan. Some should not open one. The difference is visible on the payroll registers, not on a specialty society slide.

Sterling Pension Group LLC in West Hartford is a third-party administrator. We coordinate independent Enrolled Actuaries. We are not an actuarial firm. This briefing is education for a physician-owner and for the CPA who sits beside that owner. It is not tax, legal, actuarial, or medical-practice advice. The page that frames the same issue without a date on it is physicians. The cost discussion is staff cost.

The 2025 limits are the current limits, and they are not the staff answer

For 2025, the deferral limit is $23,500. The age-50 catch-up is $7,500. A participant who attains age 60, 61, 62, or 63 may use $11,250 instead of $7,500, if the plan allows the tier. The defined contribution annual additions limit is $70,000. The compensation cap is $350,000. The defined benefit annual benefit limit is $280,000. The IRA limit is $7,000. Those figures come from IR-2024-285 and are in force for 2025. The release is IR-2024-285, and the standing table is the COLA page.

None of them tells you what a nurse, a medical assistant, a billing lead, or an employed associate must receive. The $280,000 figure is a ceiling on an annual pension benefit, explained by the IRS here: defined benefit plan benefit limits. It is not the physician's deposit. A cash balance credit for the physician is actuarial. Until an enrolled actuary values the real census, any physician dollar credit is illustrative. Adding $70,000 to $280,000 and calling the result "what a doctor can do" is still wrong in a one-physician studio, and it is nonsense in a practice with a floor of clinical staff.

If you are also finishing a 2024 contribution, that year's limits remain the 2024 limits: deferral $23,000, catch-up $7,500, additions $69,000, compensation $345,000, benefit limit $275,000. Do not restate a 2024 accrual under the 2025 benefit limit because February feels like a new year. The funding conversation for last year is /insights/spring-funding-2024.

Who is on a medical census

Count every W-2 the practice, and any related employer, will issue. Front desk, medical assistants, nurses, imaging staff, employed physicians, and a spouse who answers the phone are all people. Part-time is not the same as excludable. Hours decide more than job titles do. A medical assistant at three and a half days a week can cross a thousand-hour threshold while everyone in the office still calls the schedule part-time. Locum tenens and independent-contractor physicians belong in a question for counsel, not in a footnote that says "1099, ignore." If they are employees, they are on the census. Misclassification is not a plan-design technique.

Employed associates are the fact pattern that most often breaks a one-name illustration. They may earn enough that a token contribution fails nondiscrimination, and they may be young enough that a cash balance credit designed around the owner's age does not fit them. They are still employees until they are owners. If the professional goal is to make them owners, say so at the start. A design built for one owner and then expanded in a handshake is how disputes over who funds the minimum get started.

The general method for building the list is /insights/census-first. Dental offices have a cousin of this problem, hygienists instead of a clinical floor, written up in /insights/dentists. The legal test is the same family of tests. The payroll shape is not identical, so do not borrow a dentist's illustrative staff percentage and apply it to a medical group.

Related entities are ordinary in medicine, and they are not optional

A professional corporation employs the physician. A management company employs the staff. A real estate company employs a facilities person. An ambulatory venture sits beside the practice with overlapping ownership. Controlled group and affiliated service group treatment can pull those payrolls into one testing world. The conclusion is legal, for counsel and your CPA, not a preference stated in the plan's adoption agreement. A cash balance plan drafted only on the professional corporation, with the staff left in the management company and omitted from the illustration, is a plan drawn for a census you do not have.

Bring the entity chart to the first meeting. Ownership percentages, including family attribution your counsel says applies, belong on it. If you are unwilling to show a related payroll because it "ruins the numbers," the numbers were never yours. The plan is not a fit until you can look at the combined list and still want the promise. That is a respectable outcome. Many strong practices should keep a 401(k), use the $23,500 deferral and the applicable catch-up, and stop there.

How the dollars usually have to be split

Where a design works, it is often a 401(k) paired with a cash balance plan, not a pension alone. The 401(k) holds deferrals and a profit-sharing contribution that can be part of how staff benefits are delivered. The cash balance plan holds the physician's larger credit, if testing allows it. "If" is the load-bearing word. The actuary, not a brochure about combo plans, says whether a particular split passes. The reason pairs are common is /insights/combo-plan. Common is not automatic.

Staff cost should be stated in dollars per year, by person or by group, before anyone celebrates an illustrative owner credit. A physician who can support a low-six-figure staff cost and a physician who can support a five-figure staff cost are having different meetings. Neither meeting is improved by hiding the cost inside a percentage of a percentage. Ask for the dollar figure. Compare it with what the practice actually spends on raises, benefits, and overtime. If the pension's staff cost crowds out wages the clinic needs in order to stay staffed, the pension is the wrong instrument, even when the owner's personal tax rate is high.

An illustrative owner credit in a medical practice is not the solo neighborhood you may have seen in a general age discussion. Age still matters. A 42-year-old physician and a 58-year-old physician with the same countable pay, under the same $280,000 benefit limit, will not receive the same illustrative credit, for the reasons in /insights/age-shape. Staff can erase that difference or reverse the economics entirely. Do not quote a solo teaching range at a partner meeting. Quote the range the actuary builds on your registers, and keep it labeled illustrative until it is a valuation.

Minimum funding is a practice obligation

If the plan is adopted, the minimum contribution for a calendar-year defined benefit plan is generally due 8.5 months after year-end, September 15 of the following year. A miss can mean a 10% excise tax on Form 5330. That check is a practice check. It is not a personal check the physician writes only in good collection months, unless the practice's cash and the physician's cash are the same thing and your CPA is comfortable with that description. Group practices should decide, before adoption, which owner writes the check when one physician's production drops. The document will not invent that governance for you.

The deduction date is separate. IRC 404(a)(6) often allows a deposit by the return due date, including extensions, to be deducted on that return. Your CPA confirms the day. Do not schedule the wire for September 15 merely because that is the minimum-funding date, and do not skip a required minimum because the return was already filed. Physicians who extend almost as a habit should still ask the question explicitly. Extension is not a funding strategy. It is a tax-return timing fact.

A new plan can generally be adopted as late as the filing deadline, including extensions, under the SECURE Act. That outer date does not make February a casual month. Employee deferrals for 2025 still have to come from 2025 payroll as it is paid. You cannot wait until an extension deadline to withhold $23,500. If 2025 deferrals matter, payroll needs an election while checks remain. The adoption rule is not a reason to delay the staff-cost decision either. Discovering in the following March that the nurses make the design unaffordable is a failure of February's job, not of the statute.

Coverage by the PBGC is not settled by the word "physician"

Many small professional-service employers are exempt from PBGC coverage when the statutory conditions are met. A medical practice is often in that conversation and is not automatically exempt because it is a medical practice, because it is small, or because everyone assumes professional plans are outside the agency. Coverage is plan-specific. A practice that is not a professional-service employer under the definition, or that does not meet the participant conditions, can be covered. Never say all small plans are exempt. Start with the agency's own coverage guidance and have counsel apply it to the actual employer, including related employers if they are part of the plan's world. Premiums, if the plan is covered, belong in the cost conversation next to staff contributions, not as a surprise in the second year.

Roth catch-up, employed physicians, and payroll

Notice 2023-62 delayed the SECURE 2.0 Roth catch-up mandate through 2025. It is not in force. High-earning physicians will hear about it, because the operational rule beginning January 1, 2026 is aimed at participants whose prior-year FICA wages exceeded $150,000, a description that fits many W-2 owners and many employed physicians. When it applies, it will change the catch-up inside the 401(k). It will not change the cash balance formula, and it does not change the staff test. For 2025, do not run catch-ups as mandatory Roth. Do offer the ages 60–63 tier of $11,250 only if the document is ready and only to participants who attain those ages, including employed physicians who qualify. An owner-only setting in the payroll file is a mistake.

Publication 560 is worth handing to a physician who has only ever had a SEP. It will not compute the staff test. It will keep the vocabulary from collapsing into "the retirement plan."

Administration after the math works

If the staff math works and the owners agree, the plan becomes a recurring practice system. Census updates when someone is hired or crosses an hours threshold. A valuation each year. A Form 5500, generally due July 31 for a calendar year, extendable to October 15 with Form 5558, filed on EFAST2. Form 5558 can be e-filed. The IRS overview is the Form 5500 corner. The Department of Labor's page is Form 5500 reporting. Sterling can administer that system and coordinate the actuary who signs Schedule SB. The plan lifecycle and the fees are part of the staff-math decision, because a design that only works if professional fees are ignored does not work.

The illustrations and the calculator can start a partner conversation. They cannot finish one. The limits page can stop a partner from adding $280,000 to $70,000. The comparison among plan types can stop a practice from adopting a pension when a profit-sharing contribution would have matched its tolerance for fixed costs.

What to do in the next two weeks

Put the clinical payroll on the table before you put a contribution on it.

• Export 2024 final registers and 2025 year-to-date registers for every entity, with dates of birth, hire dates, hours, and pay. Include employed physicians and spouses.
• Ask counsel or your CPA, in one email, which of those entities have to be considered together. Do not filter the list to protect an illustrative owner credit.
• Ask the enrolled actuary for staff cost in dollars beside any illustrative physician credit, under the $280,000 benefit limit if the accrual is for 2025. Reject a one-name sketch.
• Decide, with the other owners if there are any, who funds the minimum if production is uneven. If you cannot decide, do not adopt. The not a fit page is the honest alternative.
• Tell payroll to run 2025 deferrals at $23,500 and the correct catch-up, and to leave mandatory Roth catch-up off.

When the registers and the entity answer exist, contact Sterling Pension Group. Send the census first. The design follows the census, or it does not proceed.