Portfolio CHECK-UP

Name: Paul Hanlon, MD

Residence:Southeast Florida

Age:53; spouse, 52

Family: Two children

Years in practice:21

Specialty:Cardiology

Annual income:$275,000

Savings: None specified

Financial concern:Dr. Hanlon is currently a partner with a one thirdownership interest in a cardiology practice. The practice employs five staffmembers and an office manager. Dr. Hanlon's concern is that he would liketo retire in about 10 years, but he has not been nearly aggressive enough insaving for retirement. Currently, the practice has a defined contributionplan. However, he and his partners have only been making employee electivedeferrals of $13,000 annually into the plan. Part of their reason for notmaking a serious commitment to funding such a plan is that the stock marketshave not performed well over the past several years and the planreturns have been dismal. Consequently, he and his partners have beenreluctant to make a serious commitment to aggressively funding such aplan. Dr. Hanlon asks, "Does continuing such a plan make sense, and if so,what are the available options?"

The Finance Professor's Solution

Another plus:

Having gathered the appropriate information and having had a third-partyadministrator examine the practice's census data, it was found that itmight be worthwhile for the cardiology practice to implement a definedbenefit plan. Under such a plan, both Dr. Hanlon and his partners would beable to contribute approximately $71,000 annually. However, this comes ata cost. The practice cannot discriminate against the employees in the practiceand must also make a mandatory annual contribution on their behalf aswell. The practice may adopt a vesting schedule, but it will have to make acontribution of approximately $26,000 annually for the remaining sixemployees. Is this a really good deal? Well, consider that the annual cost ofimplementing such a plan is $239,000, of which $26,000 is inured to the benefitsof the employees. The alternative would be to not do the plan, havethe partners take the $239,000 as salary, pay taxes of 35%, and net outapproximately $51,800. This defined benefit plan is protectedfrom creditors. Such a plan is definitely worthy of their consideration.

For more information, call Mr. Kosky at 800-953-5508or visit www.assetplanning.net.

and his partner, Harris L. Kerker, are principals of the Asset

Planning Group in Miami, Fla, specializing in investment, retirement, and estate

planning. Mr. Kosky teaches corporate finance in the Saturday Executive and

Health Care Executive MBA Programs at the University of Miami.

Thomas R. Kosky