Tax Advantages for Dental PEP Plans

As a dental practice owner, you understand the vital role your employees play in the success of your practice. Offering competitive benefits is crucial not only for attracting top talent but also for retaining your valued staff. One significant way to achieve this is by providing a robust retirement plan, which is instrumental in securing their future while enhancing your practice's appeal as a desirable workplace.

At Cornerstone, we specialize in crafting tailored retirement plans for dental professionals in North Carolina. With years of experience and a deep understanding of the unique financial landscapes faced by dental practices, we are well-equipped to guide you through every aspect of your retirement planning needs.

Our collaboration with Voya Financial and the North Carolina Dental Society brings you exclusive access to the Dental Society Pooled Employer Plan (PEP), a game-changer in retirement planning. This collaboration ensures dental practices get the most out of their retirement plan offerings, leveraging expert knowledge and comprehensive resources.

In this blog, discover the tax advantages of Pooled Employer Plans (PEPs) for dental office owners, including tax savings, reduced administrative costs, and improved employee satisfaction, securing your practice’s financial future.

What is a Pooled Employer Plan?

Pooled Employer Plans (PEPs) are a type of retirement plan that allows multiple employers to band together to provide a unified plan to their employees. This collective approach is designed to reduce administrative burdens, mitigate fiduciary risks, and potentially lower costs for each participating employer. Under the SECURE Act of 2019, PEPs allow smaller businesses to enjoy economies of scale similar to larger corporations, making robust retirement benefits more accessible.

In essence, PEPs function by unifying the contributions and management of retirement funds across the participating employers. They are structured to streamline plan administration and compliance, leveraging the power of collective bargaining to secure better terms and services for participants.

Why are PEPs important for Dental Practice Owners?

For dental practice owners, PEPs present a valuable opportunity to offer competitive retirement benefits without the daunting overhead of managing an individual plan. Given the specialized nature of dental practices, the ability to join a PEP means less time spent on administrative tasks and more focus on patient care and practice growth. PEPs can also enhance a dental practice's appeal in the job market by providing attractive retirement benefits, a critical factor in retaining skilled staff.

Moreover, with the tax advantages and cost efficiencies PEPs offer, dental practices can achieve financial savings and employee satisfaction. This duality is crucial for ensuring the long-term sustainability of the practice and fostering a positive work environment.

Who is Involved in a PEP Plan?

The primary role of the Pooled Plan Provider (PPP) is to oversee the management and fiduciary responsibilities of the PEP. This includes ensuring compliance with regulatory requirements, managing the plan’s assets, and handling administrative functions such as participant communication and account management. The PPP acts as a central figure, allowing employers to pool their resources and delegate the more complex aspects of plan management.

Participating employers, on the other hand, are responsible for enrolling their employees in the plan and making contributions. As the PPP handles these crucial aspects, they benefit from reduced fiduciary liabilities and administrative duties. This arrangement permits employers to offer high-quality retirement benefits with less hassle and more efficiency.

Advantages 

Tax Deduction on Contributions

Employer contributions to a PEP are typically tax-deductible as business expenses. This means that when a dental practice allocates funds to the PEP on behalf of its employees, those contributions can be deducted from the practice's taxable income. This deduction effectively lowers the overall taxable income of the business, leading to potential tax savings.

For a dental practice, this can be a considerable financial benefit. By reducing taxable income, the practice can lower its tax liability, freeing up resources that can be reinvested into the business or used to enhance employee benefits further. For example, if a dental practice contributes $10,000 annually to the PEP, it can deduct this amount from its taxable income, reducing the sum subject to tax.

Example Scenarios

Consider a dental practice with a taxable income of $200,000 before any retirement plan contributions. By contributing $20,000 to the PEP, the taxable income is reduced to $180,000. Let's assume the practice operates in a 30% tax bracket. The tax savings in this scenario would be $6,000 ($20,000 x 30%). These savings can be substantial, especially for small to mid-sized dental practices.

Moreover, the funds contributed to the PEP compound over time, providing further value to employees' retirement savings while delivering immediate tax benefits to the practice. This dual advantage underscores why many dental practices in North Carolina consider adopting PEPs through Cornerstone Wealth Group, leveraging our expertise to maximize these tax benefits.

Tax Credits for Small Employers

The SECURE Act has made it significantly more accessible and more appealing for small businesses to establish and maintain retirement plans by offering various tax credits to offset start-up costs. Dental practices, particularly smaller ones, can capitalize on these credits to make employee retirement benefits more affordable.

• Start-up Credit

For dental practices with 1-50 employees, the SECURE Act provides a tax credit equal to 100% of start-up costs, up to $5,000 per year, for the plan's first three years. For practices with 51-100 employees, the credit covers 50% of start-up costs, with the maximum credit still capped at $5,000 per year. These credits help significantly reduce the financial burden of setting up a new retirement plan, making it more feasible for smaller dental offices to offer competitive benefits.

• Auto-Enrollment Credit

In addition to start-up credits, small dental practices incorporating an automatic enrollment feature into their new or existing PEP can receive an additional tax credit of $500 per year. This auto-enrollment credit applies for the first three years the feature is in place, further encouraging practices to streamline employee participation and enhance plan effectiveness.

• Employer Contribution Credit

Another compelling incentive is the Employer Contribution Credit, which offers a staggered percentage credit over the first five years for contributions made by the employer:

Year 1-2: 100% of employer contributions per employee

Year 3: 75% of employer contributions

Year 4: 50% of employer contributions

Year 5: 25% of employer contributions

However, this credit has limitations; it does not apply to employees who earn more than $100,000 annually. Additionally, the credit percentages are slightly reduced for practices with 51-100 employees, making the benefit less substantial but still valuable.

Example Scenario

Imagine a dental practice with 40 employees that spends $10,000 on start-up costs. The practice is eligible for a $10,000 credit over three years, completely offsetting the initial expense. If the practice adds auto-enrollment, it can claim an additional $500 yearly, totaling $1,500 over three years. Further, if the practice contributes $5,000 annually to the PEP, it benefits from credits for these contributions, bolstering the plan's attractiveness while cushioning its costs.

These tax credits make it financially viable for dental practices to elevate their benefits packages, reinforcing their commitment to employee welfare while maintaining economic efficiency.

Reduced Administrative Costs

One of the significant advantages of Pooled Employer Plans (PEPs) for dental practices is the reduction in administrative costs. Dental practices can share the expenses associated with managing a retirement plan by pooling resources with other employers. These shared costs typically include plan administration, compliance, record-keeping, and employee communication—all crucial to running a retirement plan.

The financial burden of these administrative tasks is significantly reduced for a dental practice. Instead of each practice bearing the total cost, expenses are distributed among all participating employers. This cost-sharing model can lead to substantial savings, allowing practices to allocate funds more efficiently. Additionally, the collective bargaining power of PEP participants can lead to better service rates from plan providers.

Lower administrative costs not only enhance the plan's affordability but also indirectly reduce the taxable expenses of the business, contributing to the overall financial health of the practice.

Deferral of Taxes on Earnings

One key tax advantage of participating in a Pooled Employer Plan (PEP) is the tax-deferred status of earnings. The earnings generated within the PEP are subject to taxes once they are withdrawn by the employees, typically upon retirement. This tax deferral allows the investments made within the plan to grow without being reduced by annual taxes.

For dental practices, this deferral means that the funds contributed on behalf of employees can accumulate more rapidly. The compounded growth can lead to a larger retirement nest egg for employees as the investments grow tax-free over the years. This potential for higher returns makes the retirement plan more attractive to employees while showcasing the practice’s commitment to their financial well-being.

Additionally, deferring taxes on earnings can improve the practice’s attractiveness to prospective employees and aid in employee retention, enhancing overall staff satisfaction and stability.

Enhanced Employee Retention and Recruitment

A robust retirement plan, such as a Pooled Employer Plan (PEP), can significantly enhance a dental practice's appeal to potential hires and help retain existing staff. In a competitive job market, benefits like a comprehensive retirement plan can be a deciding factor for talented professionals when choosing an employer.

Dental practices demonstrate a commitment to their employees' long-term financial security by providing a PEP. This commitment can foster a positive workplace environment where employees feel valued and secure, increasing job satisfaction and reducing turnover.

Furthermore, retaining skilled employees means maintaining high patient care and operational continuity. The combined impact of attraction and retention strengthens the practice, leading to increased productivity and reduced costs associated with frequent hiring and training. Ultimately, this investment in employee benefits translates to a more stable and prosperous dental practice.

Reduction in Fiduciary Liability

Another significant advantage of participating in a Pooled Employer Plan (PEP) is reduced fiduciary liability for dental practices. In a traditional retirement plan, the employer bears substantial fiduciary responsibilities, including ensuring the plan's compliance with regulatory requirements and managing investments prudently. These responsibilities can be daunting and carry significant risks.

In a PEP, however, these fiduciary responsibilities are shared with the Pooled Plan Provider (PPP). The PPP manages the plan, adhering to compliance standards and overseeing investment choices. This shared responsibility alleviates the burden on the individual dental practice, reducing the risks associated with fiduciary liability.

This reduction in liability can also lead to decreased costs related to fiduciary insurance premiums and management fees. By minimizing these risks and costs, dental practices can focus more on their core operations and be secure in the knowledge that their retirement plan is being managed responsibly.

Why Choose Cornerstone Wealth Group?

Cornerstone stands out as the ideal partner for dental practices in North Carolina seeking comprehensive retirement solutions. With our specialized expertise in retirement planning for dental professionals, we understand the unique needs and challenges dental practices face. Our collaboration with Voya Financial and the North Carolina Dental Society ensures that you have access to top-tier resources and industry insights.

At CWG, we offer bespoke financial guidance tailored to your practice's specific needs. We aim to help you navigate the complexities of Pooled Employer Plans (PEPs) and maximize the associated tax advantages. Our collaborative and transparent approach ensures you feel confident and well-informed at every step.

By choosing CWG, you align with a team dedicated to your financial success and future. Let us help you secure a robust retirement plan that benefits your practice and employees.

Schedule a Strategy Session Today 

Ready to take the next step in securing your dental practice’s financial future? Schedule a strategy session with a Cornerstone advisor today to explore how Pooled Employer Plans (PEPs) can benefit your practice and your employees. Our experts are here to guide you through the process and tailor solutions to your unique needs.

In the meantime, take advantage of our upcoming webinar specifically designed for dental professionals. Sign up now to gain valuable insights on Navigating Fiduciary Obligations as a Dental Practice Owner.

This is for informational purposes only. Please speak to a qualified representative about your unique situation. Links within this blog are not associated to Cornerstone Wealth and are subject to change. Cornerstone Wealth is not affiliated with Voya Financial or the North Carolina Dental Society. Investment advisory services offered through Cornerstone Wealth Group, LLC dba Cornerstone Wealth, an SEC registered investment adviser.