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    • Veterinary Practice Retirement Plan Offerings Require Owner Oversight

    Does your veterinary practice sponsor a retirement plan for employees?

    A 2020 AVMA survey indicated that 60% of private practices provided a retirement savings vehicle. The 2023 VHMA Compensation Study reported ranges from 68% to 88% of respondents saying they participated in a practice sponsored retirement savings plan.  More recently, a Veterinary Study Group survey (2022 year data) revealed that of 211 practices, 77% offered a tax-deferred retirement plan.

    Generally, there has been an uptick in the number of small businesses offering retirement plans, especially since enactment of the SECURE 2.0 Act of 2022.

    While 401(k) plans are increasing in usage, SIMPLE IRA plans (Savings Incentive Match Plan for Employees) continue as a popular option for small-business and self-employed individuals with 100 or fewer employees. Many veterinary practices start their retirement savings offerings with a SIMPLE IRA plan as they are relatively easy to set up and do not require annual IRS reporting on the Form 5500, Annual Return/Report of Employee Benefit Plan.

    A quick internet search for “investment companies offering SIMPLE IRA plans” provides a long list of available options, such as T. Rowe Price, Vanguard, Fidelity, Charles Schwab, and many other familiar names.

    While at first glance it appears a relatively light administrative burden to start a SIMPLE IRA plan, veterinary practice managers and owners should be aware of their duties and compliance with IRS and DOL rules.  Like most employer-sponsored retirement plans, SIMPLE plans are covered by ERISA (the Employee Retirement Income Security Act).

    Retirement plan sponsorship carries many of the responsibilities expected of employers for managing payroll and associated taxes withheld from employee wages for remittance to the various taxing agencies. And like labor law posters, regularly prescribed notifications must be given to employees who work for a practice that offers a SIMPLE IRA (and other qualified benefits, as well.)

    Too often employers don’t pay attention to the rules and can find themselves in serious trouble and penalty cost, particularly if they are audited.

    We have unfortunately observed veterinary practice employers fall afoul of the rules. Some basic information and tasks to keep in mind, that seem to cause trouble:

    1. Shareholding veterinarians (owners of veterinary corporations) forget that they are employees of the practice and contributions to their accounts are as important as those to other employees. If shareholders have elected to participate in the SIMPLE, the practice must timely remit their withheld and tax-deferred contributions to the custodian of the IRA accounts (fund management group or bank).
    2. All employee elected deferrals (the amount employees elect each year to contribute to their Individual Retirement Accounts) must be submitted to the IRA custodian no later than thirty days following the end of month in which payroll withholding occurred.
    3. Employers are required to annually provide a Summary Plan Description (SPD) to all eligible employees, by November 2 of each year, the deadline before the start of the 60-day election period for the following plan year. The SPD outlines essential details about the plan, including eligibility requirements, contribution options, and procedures for making elections and withdrawals.  The custodian/trustee is supposed to provide the SPD to the employer for distribution to all employees.
    4. The employer must also give written annual notification to each employee  of their options for deferral election and also of the employer’s contribution (matching or non-elective) for the plan year.
    5. Failure to provide SPDs and/or SIMPLE election rule notices can result in $50 per day penalties.

    BFH CPAs, Inc. recommendations when your veterinary practice offers employees participation in a SIMPLE IRA Plan:

    1. At least annually, review administrative tasks required of the employer. Typically, these are outlined on the website of the “sponsoring organization”, generally the fund group or bank chosen for ministerial tasks, and custody of employee IRAs.
    2. Be clear as to the tasks the veterinary practice employer is responsible for completing versus those of the sponsoring fund group or bank. Don’t let gaps occur through “assumicide”.
    3. Keep an electronic practice administration calendar current with essential repetitive administrative task due dates, such as providing annual notices to employees.
    4. Establish a log to record all employee notifications and other tasks as they are completed, with the date of completion, mode of communication, and what information was provided. 
    5. Internal practice bookkeeping processes should be formally established to create records and maintain checks and balances for employee paycheck withholding and correlating fund submission to the custodian of employee IRA accounts.
    6. Work with the practice CPA to modify the practice’s chart of accounts so as to accurately track all amounts related to SIMPLE withholding and submission, as well as employer SIMPLE matching of employee contributions.
    7. Coordinate the SIMPLE Plan employee elections with the payroll company to assure they are calculated correctly for amount and as pre-tax contributions.
    8. Require the bookkeeper to reconcile all bank accounts within 5 business days of end of month, and provide a balance sheet and profit and loss statement to practice owners/officers each month.
    9. The practice treasurer or other responsible owner-officer should regularly check payroll and financial reports and compare them with those of the custodian of employee IRA accounts.
    10. When cash is short, any liabilities related to employee compensation, including SIMPLE IRA deferrals take precedence. Assure these liabilities are paid before those owed to vendors.
    11. Before annual employee Form W-2s are finalized, double check total employee contributions (Box 12) to the totals reported and submitted to the fund group/bank.
    12. At year end, also check that the employer match was computed correctly. Assure it is paid by the time the practice’s income tax return is filed, including extensions.

    The foregoing observances and recommendations show that even SIMPLE plans are not simple. Veterinary practice employers must be careful to administer plans correctly. Employee compensation of all kinds, including retirement funding, represent the highest level of financial risk and obligation for employers.

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