Why Medical and Dental Practices Face Unique Retirement Plan Risks
Medical and dental practices often assume their retirement plan options are relatively straightforward and should be simple to administer. In reality, these businesses frequently present some of the most complex retirement plan challenges among small-to-mid-sized employers.
Importantly, this complexity also creates favorable planning opportunities—allowing practices to structure retirement programs that maximize tax efficiency for high-earning professionals while strengthening long-term staff retention.
The complexity we’re referring to stems from a combination of workforce structure and compensation design. Many practices include high-earning owner-physicians or dentists; associate partners, often with variable compensation packages; and various types of support staff—such as hygienists and assistants—paid on an hourly basis. In addition, bonuses may be tied to production, ownership may span multiple locations or entities, and partner buy-ins or exits occur regularly.
These factors combine to create a dynamic environment, one where retirement plan administration requires a fair amount of precision and proactive oversight.
Variable Compensation and Associated Nondiscrimination Testing Failures
One of the most significant retirement plan risks for medical and dental practices is variable compensation, and its impact on nondiscrimination testing, required by the IRS. When there is a wide gap between owner compensation and staff wages, testing outcomes can become highly unpredictable.
The situation becomes even more complex when compensation definitions are not applied consistently under the terms of any retirement plan(s) in place. For example, if bonuses are inconsistently included or excluded from plan compensation, it can distort testing results and lead to plan compliance issues.
These issues may result in failed Actual Deferral Percentage (or”ADP”) / Actual Contribution Percentage (or “ACP”) tests; required corrective contribution payments; refunds to highly compensated owners; and other unanticipated employer costs. In many cases, the issues are only identified after year-end, when correction options are more limited - and more costly.
Performing proactive testing projections and creating clearly-defined compensation policies are essential to reducing volatility and maintaining compliance.
Ownership Changes and Controlled Group Compliance Risk
Medical and dental practices also experience frequent ownership transitions, including the admission of new partners, partial ownership transfers, and the operation of multiple related entities. While these changes are often made for growth and succession planning purposes, they can significantly impact retirement plan compliance.
If ownership percentages and entity relationships are not regularly evaluated, it can trigger something called “controlled group rules”. When this occurs, employees across all related entities must be considered together for retirement plan coverage and nondiscrimination testing purposes.
Failure to properly identify and apply controlled group status can lead to plan testing failures, missed employee eligibility, and incorrect contribution allocations. These risks are particularly common in practices that expand to multiple locations or operate through separate legal entities without a coordinated retirement plan strategy.
SECURE 2.0 and Evolving Retirement Plan Requirements
Recent legislative changes have introduced additional layers of complexity for medical and dental practices. Provisions under the SECURE 2.0 Act require employers to interpret and implement new rules that can disproportionately affect practices with variable compensation structures and diverse workforces.
Key considerations include Roth catch-up contribution requirements for higher earners, long-term part-time employee eligibility tracking, and increased penalties for late or inaccurate filings. Each of these changes requires careful coordination between payroll, plan administration, and compliance processes.
For practices already managing complex compensation and ownership dynamics, these regulatory updates further increase the importance of proactive retirement plan oversight.
The Bottom Line: Aligning Retirement Plan Strategy with Practice Structure
Medical and dental practices benefit most from a retirement plan strategy that is intentionally aligned with their compensation models and ownership structures. This includes clearly defining plan compensation, anticipating the impact of ownership transitions, conducting nondiscrimination testing projections throughout the year, and adapting plan design to meet evolving regulatory requirements.
Without proactive oversight, even small inconsistencies in compensation or ownership tracking can lead to recurring compliance failures. Over time, these issues can result in increased costs, administrative burden, and regulatory exposure.
By taking a strategic and coordinated approach to retirement plan design and administration, medical and dental practices can reduce compliance risk, improve testing outcomes, and better support both owner and employee retirement goals.
