All contributions into the plan are pooled and invested together by the plan trustee. However, hypothetical individual accounts are tracked and credited with a certain amount of interest each year, depending on the performance of the underlying investments. If the investments perform well, that credited interest rate may be higher up to a certain point, such as 5–7 percent per year. If the investments perform very well, the additional earnings, above and beyond the 5–7 percent limit, are allocated to a surplus account where they can be used to make up for future shortfalls in investment performance or to reduce future required contributions. If the investments perform poorly, the owners of the company may be required to contribute additional money to the plan to make up the losses over a period of a few years. This aspect of defined contribution plans turns off many physicians (who are generally not only the participants in the plan but also the owners of the company). However, in reality, this mechanism is of significant benefit to the physician. Not only do you get to defer even more money into the plan, the make-up contributions are also deductible. You are essentially forced to buy low, boosting future market returns.

Many emergency physician partnerships have incorporated both a 401(k)/profit-sharing plan and a cash balance plan into their practices. Independent contractors without employees can also use this combination of accounts. An individual 401(k) is relatively easy to set up. A personal defined benefit plan is a little more complicated but still widely available from a number of firms at a fair cost. Because you are both the trustee and the participant, you will have even more control over your investments.

Contribution limits to these plans vary based on a number of actuarial factors, such as the age of the participants. The older the participants, and the fewer years they will be in the plan prior to retirement, the more that can be contributed. Typical maximum contributions for emergency physicians range from $10,000 to more than $100,000 per year, all in addition to your 401(k) and IRA contributions.

Cash balance plans are a type of defined benefit plan that resembles a defined contribution plan. Emergency physicians interested in boosting retirement savings and minimizing their annual tax bill should give strong consideration to adding a cash balance plan on top of their existing 401(k) plan. A cash balance plan is a great option for those who wish to save for retirement and are already maxing out their 401(k)s and backdoor Roth IRAs.