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  • Explain how Kaiser's Pension Works

    I am giving a webinar to residents about private practice (my practice model) and comparing various aspects of private vs. employed models. I am hoping someone here can help me put a $ value (in 30 years) on the Kaiser pension as it would apply to a new hire today. I'm not looking for a discussion of whether the pension is under funded and whether it will exist in 30 years....

    Specifically: An example private practice doctor can max out a 401K profit share at $56k/year, and assuming a 7% return for 30 years it will be valued somewhere around $5.6m. Take a 4% safe withdrawal rate and that gives you $224k/yr. Easy. (Ignore assumptions about rate of return and increasing 401k limits over time)

    Kaiser's plan earns 2% of salary x 20 years, then 1% thereafter. So after 30 years, the pension would be 50% of salary per year. Comparing apples to apples, would mean the private practice "equivalent" would be a $448k salary + $56k contributed annually to 401k for a total of $504k. So in effect, $448k at Kaiser is comparable to $504k in private practice. Hopefully you're following (and hopefully I'm not way off). (again, ignoring annual salary increases)

    The question: How do you value Kaiser's pension at the moment of retirement? In the case above, the private 401K has a clear value of $5.6m. But for Kaiser, it's a promise of $224k/yr..... but for how long? And what happens if you die at 68... or at 102? Does your spouse/kids inherit the payments? And if so, for how long? Do you have the option to take a lump-sum payment at retirement? If so, how much is it as a % of annual salary? Also, is the pension income taxed the same as the 401k would be?

    Hopefully this isn't too confusing. Can anyone help answer these questions so I can provide a balanced presentation? And if I'm thinking about this all wrong, please guide me in the right direction.

    Thanks in advance!

  • #2
    I've never worked for KP but there was some discussion of this a few years ago. It doesn't answer all of your questions:
    https://www.whitecoatinvestor.com/fo...tpmg-docs-here

    See AlexxT's post where he talks about how you are owed a lump sum because the pension can only be based on an IRS HCE max of 270k a year (probably increased now), and you have to pay tax on the lump sum.

    Good luck distilling this down to a resident-friendly webinar.

    I'll tell you that for my pension I had the option of A) deferred annuity B) 10 year SLA (so if I die at 68 my beneficiary gets 7 years of payments... maybe worth 80-90% of option A) and C) lump sum (worth a pittance).

    Another important question is if the pension has a COLA.

    As for taxation, pretty sure the IRS will treat it the same as a 401k. There might be some differences in how certain states treat it, but can't generalize

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    • #3
      I’ll leave the math comparison to someone else but would add that kaiser docs can use the 53k of 401k space too (19k regular, 15k aftertax, plus employer contribution).

      Comment


      • #4
        There are different distribution options so no 1 answer. Also don't forget Kaiser employees also get a Keogh with profit sharing on top.

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        • #5
          The short answer is : Kaiser's pension plan is the gold standard of pension plans if you're in for the duration and buy into the system.

          You won't be poor during employment, you will probably do physician level work, and you'll be taken care of afterwards -- but you're an employee and probably never 'be king'

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          • #6

            Hi EastBayHand-


            As mentioned above by Peds, it’s hard to answer your questions about the Kaiser (TPMG) pension since there are many ways (10+) that the pension can be paid out (and the choices would affect the answers). For example, you can pick a single life annuity (covering just the physician’s lifetime and then nothing after his/her death) or a joint retirement annuity (for both the physician and joint annuitant’s lifetime, at different survivor percentages). You can also pick certain and life annuity (of various lengths, covering the physician’s lifetime with a guarantee of a certain number of years). The closest to a lump sum would be an installment annuity (of 5 years duration which can be rolled tax free to your IRA or 401k).


            This also doesn’t factor in the supplemental retirement payment for physicians earning over the federal compensation limit (which based on the salaries you mention in your post, would be a pretty hefty payment after a full career). This payment is paid as a lump sum after retirement but no earlier than 65 years of age.


            Also, it’s probably fair to mention that at those salaries you discuss, TPMG would be putting around $20k a year into Plan 2 (essentially 401k “match,” though you don’t have to contribute anything yourself to get the money, though it takes 5 years to fully vest).

            Best,
            WW

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            • #7
              iIRC Kaiser gave us a yearly statement showing how much benefits we received and estimated value if that. I don't remember if it broke down the retirement do stuff along with insurance, but it was around 30% of total compensation...but my memory fades in that one

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              • #8
                Originally posted by StarTrekDoc View Post
                iIRC Kaiser gave us a yearly statement showing how much benefits we received and estimated value if that. I don't remember if it broke down the retirement do stuff along with insurance, but it was around 30% of total compensation...but my memory fades in that one
                STD, you are correct. TPMG provides an annual total compensation and benefits statement that breaks down benefits by category. Looking over the past few years, they list the annual cost to the group for my current and retirement benefits as between 30 to 35% of my base salary. (over the past couple of years, 60 to 65% of the total benefit amount was represented by the plan 1 and supplemental plan (ie pension) contributions plus retiree health benefit plan contributions).

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                • #9
                  So let’s say if I start working at Kaiser at 50 and work full time until I’m 65 then after 15 yrs I will be eligible for pension and benefits in retirement?

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                  • #10
                    Bump

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                    • #11
                      Originally posted by EastBayHand View Post
                      I am giving a webinar to residents about private practice (my practice model) and comparing various aspects of private vs. employed models. I am hoping someone here can help me put a $ value (in 30 years) on the Kaiser pension as it would apply to a new hire today. I'm not looking for a discussion of whether the pension is under funded and whether it will exist in 30 years....

                      Specifically: An example private practice doctor can max out a 401K profit share at $56k/year, and assuming a 7% return for 30 years it will be valued somewhere around $5.6m. Take a 4% safe withdrawal rate and that gives you $224k/yr. Easy. (Ignore assumptions about rate of return and increasing 401k limits over time)

                      Kaiser's plan earns 2% of salary x 20 years, then 1% thereafter. So after 30 years, the pension would be 50% of salary per year. Comparing apples to apples, would mean the private practice "equivalent" would be a $448k salary + $56k contributed annually to 401k for a total of $504k. So in effect, $448k at Kaiser is comparable to $504k in private practice. Hopefully you're following (and hopefully I'm not way off). (again, ignoring annual salary increases)

                      The question: How do you value Kaiser's pension at the moment of retirement? In the case above, the private 401K has a clear value of $5.6m. But for Kaiser, it's a promise of $224k/yr..... but for how long? And what happens if you die at 68... or at 102? Does your spouse/kids inherit the payments? And if so, for how long? Do you have the option to take a lump-sum payment at retirement? If so, how much is it as a % of annual salary? Also, is the pension income taxed the same as the 401k would be?

                      Hopefully this isn't too confusing. Can anyone help answer these questions so I can provide a balanced presentation? And if I'm thinking about this all wrong, please guide me in the right direction.

                      Thanks in advance!
                      Old thread, but since bumped, I'll attempt an answer. Usually when you take a pension distribution, there is a whole schedule of options (annuities), and a lump sum payout. Some options pay more, some pay less depending on whether the spouse beneficiary gets 100% of the doctor's amount, etc., so even valuing the pension itself is going to be difficult due to these options. Here's a summary of some of these:

                      https://techstaffer.blog/2020/12/11/...ension-plan-2/

                      So the guarantee of Keiser is worth something (discounted by any issues the pension has, of course), they will pay this until 102 (assuming they are around and the plan is solvent), but if you die with a single premium annuity (with 100% joint survivorship) where spouse gets 100%, and spouse dies earlier, kids get nothing. Same thing, if spouse only gets 50% (higher payout than 100% joint), then spouse only gets half. So even valuing this pension is nearly impossible as it depends on multiple factors (longevity being one of them). So the value of this pension can range from A to B where the difference depends on your assumptions for a specific scenario (or set of scenarios), and you can get a lower bound and an upper bound this way, but the difference would potentially be huge, so this is not the best way to make a comparison (but it could be useful to do this just to estimate what the total payout range is).

                      Another wrinkle is that you can have a Cash Balance plan (your own pension) for your practice, so unless you are just a W2 and not a partner, you can also get together a mighty fine pension with a lot better payout options (albeit no guarantees). So usually if you take a lump sum from an employer such as Keiser, you will keep the least amount of money, single life annuity is usually the highest, survivorship benefits decreases the payout (and kids get nothing unless it is a lump sum). Of course, it is a benefit that employer provides, while a CB plan is a benefit that you pay for yourself. So it is difficult to compare the two without a sophisticated model that takes into account both 401k and CB plans (which typically run for 10 years or so, unless the practice runs it for longer), but there may be another way to do it (see the next paragraph).

                      I would rank private practice higher in terms of retirement plan benefits, even though Keiser's is good, you can potentially get a $3M CB plan plus any 401k benefits, which can be reinvested, and your final 'lump sum' will be quite significant. The hard part is managing your own money prudently, which is where getting an annuity (even if it is not going to kids) is nice (but not required for WCI readers unless absolutely necessary), but if you wanted to turn your lump sum into an annuity, it could be done as well. So another way to compare these two benefits is if you can take a total lump sum at retirement from a private practice and get a quote for an annuity (similar to the one you get from Keiser, assume 100% joint survivorship) and see what annual payment you can get starting with a lump sum at say age 65 ($3M CB and say $5.6M 401k mentioned above, and also include any Keiser self-funded plans into the mix on the other side of the equation). That's the easiest way to compare apples to apples. Not all practices have CB plans though, but those that do will probably do quite well in this comparison.

                      This calculator goes up to $5M only:

                      https://www.schwab.com/annuities/fix...ity-calculator

                      I get about $250k a year with $5M and joint survivorship assumption. So this is probably the best way to compare a pension with private practice benefits side by side.
                      Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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                      • #12
                        Originally posted by StarTrekDoc View Post
                        The short answer is : Kaiser's pension plan is the gold standard of pension plans if you're in for the duration and buy into the system.

                        You won't be poor during employment, you will probably do physician level work, and you'll be taken care of afterwards -- but you're an employee and probably never 'be king'
                        After how many yrs of service do you become eligible for this plan ?
                        let’s say someone starts with Kaiser at 50 will they be eligible by 65? And how much of their pay ?

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