Defined Benefit Plan Questions for a Dermatology Practice

A dermatology practice should request a defined benefit plan illustration only after connecting three files: usable practice cash, documented owner compensation, and a complete employee census. For a practice offering both insured clinical care and self-pay cosmetic services, the first question is how each revenue stream turns into cash after its remaining obligations. A strong cosmetic month alone does not establish an affordable retirement commitment.

The IRS defined benefit plan overview explains that benefits follow a fixed formula and an enrolled actuary determines funding levels. The worksheet below prepares the practice's operating facts for that professional analysis. It does not calculate a contribution, tax deduction, or eligibility result.

Which clinical collections are actually available?

Separate clinical charges, contractual adjustments, insurance payments, patient payments, and outstanding receivables. Reconcile cash received to bank deposits and record known refunds, disputed payments, and potential repayment items for review. An unpaid claim belongs in the collections forecast; it is not today's bank cash. Avoid adding both the claim balance and its expected receipt to the same cash screen.

Ask the billing manager which large balances remain unresolved, why they remain open, and when payment is realistically expected. Show the effect of a slower payer or interrupted physician schedule. This is a practice budgeting exercise: it makes no claim about insurer turnaround times, reimbursement rates, or dermatology collection benchmarks.

What still needs to be delivered on cosmetic receipts?

Maintain a separate schedule for cosmetic payments already collected, completed procedures, prepaid packages with services remaining, outstanding refunds, and disputed card transactions. If the practice sells a series of treatments, list the appointments and associated labor or supply costs still expected. Review package terms and refund obligations with the appropriate advisers; the worksheet does not prescribe their legal or tax treatment.

Cash collected before a service is delivered may help explain the bank balance while also creating future work. Reserve amounts for that work using the practice's own records. Identify whether an amount is an expected cash outflow, a cautious management reserve, or a receivable. That distinction prevents an impressive deposit total from becoming an unsupported funding assumption.

How do provider pay and owner compensation differ?

Build a bridge from collections to practice cash after employed-provider compensation, payroll costs, supplies, rent, debt payments, and other commitments. List any provider compensation owed under employment agreements even if it has not yet been paid. A revenue report by physician or service line helps explain operations; it does not establish the owner's plan compensation.

For an S corporation owner, keep shareholder distributions separate from compensation records. The IRS S corporation retirement-plan FAQ states that shareholder distributions are not earned income for retirement-plan purposes. Give the actuary actual payroll records and ask for the proposed plan's compensation definition. Do not increase wages simply to reach an advertised contribution figure without reviewing the broader payroll and tax consequences.

For a sole proprietor or partner, ask the tax adviser to reconcile the relevant earned-income calculation rather than submitting collections or owner withdrawals as compensation. IRS Publication 560, Definitions You Need To Know, explains earned income and net earnings from self-employment, including adjustments relevant to retirement plans. Entity treatment matters; one gross-revenue figure cannot answer every owner's question.

A hypothetical dermatology cash worksheet

Assume a practice has $260,000 in reconciled operating cash. Of that balance, management identifies $30,000 for future costs associated with prepaid cosmetic treatments and $10,000 for expected refunds. It also identifies $90,000 in near-term payroll and operating bills, $25,000 for tax payments, and a $60,000 operating reserve. Assume these amounts are separate, supported by the practice's records, and not counted twice.

Cash-screen item	Amount
Reconciled operating cash	$260,000
Future treatment costs and expected refunds	($40,000)
Near-term payroll and operating bills	($90,000)
Tax payments	($25,000)
Protected operating reserve	($60,000)
Remaining screening balance	$45,000

The calculation is $260,000 minus $40,000 minus $90,000 minus $25,000 minus $60,000, leaving $45,000. Outstanding clinical claims of $70,000 are excluded because they are uncollected. If management raises the operating reserve by $20,000 for a slower clinical period, the screening balance falls to $25,000. These invented amounts are neither industry benchmarks nor a contribution recommendation. Plan funding and administration costs must still be evaluated separately.

Who belongs in the employee review?

Include owners, employed physicians, physician assistants, nurses, medical assistants, cosmetic-service staff, billing staff, and front-office employees in the initial census. Record employer, age, compensation, hire and termination dates, and service records. Flag workers paid through another entity or staffing arrangement for professional review. Do not exclude someone because their work belongs to the cosmetic side of the practice.

Ask the administrator to explain eligibility, coverage, nondiscrimination, and defined benefit plan participation requirements separately. The IRS qualified-plan requirements guide identifies these distinct checks. Our physician practice-owner framework provides the deeper employer and workforce review when multiple entities are involved.

What should the review meeting produce?

Bring the two revenue schedules, cash worksheet, compensation reconciliation, census, existing plan documents, and a forecast reflecting a weaker collections period. Request a written illustration showing assumptions, employee benefits, funding requirements, fees, and responsibilities. Use the funding-estimate guide to prepare questions about changes between an initial illustration and later calculations.

For plans subject to ERISA, provider selection and ongoing monitoring also require attention. The Department of Labor's service-provider guidance recommends documenting selection and checking delivered services and actual fees. Assign a practice contact to maintain the records and follow up on discrepancies.

TaxBowl's tax and accounting team can help organize the revenue, compensation, and forecast records for a coordinated review with qualified plan professionals. The useful next decision is whether a supported illustration fits the practice's ongoing obligations and cash outlook.