Salary Deferment - How does this work?

[Sahd]

My wife is currently an attending physician and is being offered a position at a competing hospital. She is still awaiting the offer, but during discussions they mentioned they offer salary deferment (up to 90% of her salary I believe?) as one of the advantages to join them.

I never made it high enough in the corporate world to be considered for that sort of compensation, so this is a new concept for me. Since I handle all the finances for our family it is left up to me to investigate... and I am having quite a tough time with this. Googling for a few hours has left me even more confused.

I was hoping joining this forum would help educate me, or at least direct me to the right path to knowing what questions we need to ask the hospital, how we should factor this benefit into her decision whether to accept the position, and get a general idea of the advantages/disadvantages of salary deferment.

Some additional information which may be helpful.

-The hospital is a non-profit
-We have exhausted tax advantaged ways to save money already, so this seems enticing
-The salary offered regardless of the salary deferral is expected to a bit higher than current salary so she would likely accept
-She carries 150K in loans on a 3.5 interest rate, currently ineligible for PSFL unless we change her loans (outside of our mortgage this is the only debt carried)
-39 years old
-The new hospital has asked her to provide her RVU to them so they can determine how much they offer... which she and I had never heard of and had to google that one too... (she is not a 'numbers' person and to my chagrin, does not press her present employer on her metrics, she just works non stop). I may make a second thread on understanding RVU later...


Some basic questions which may be stupid, but have to start somewhere:

-Is there a "TL;DR" summary of how this works? Do we take an amount, say 100K, and get to defer it say, 2035, and then only pay taxes on whatever bracket we are in at that point?

-Where does the deferred money go? Do we have control over what types of investments like we do for our 401K? Is it frozen as cash? Is it set to some fixed interest rate?

-What happens to the money if she chooses to leave the hospital early? Does she forfeit the money?

Appreciate any feedback, direction to further reading, experiences from other physicians. Thank you!

-Stay at home dad

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[Saddleshoes]

Is the hosptal a State Owned or Non-Profit operation? If so could they be refuring to a 403 (b) plan?
I know it is possible to sock away the lion's share of your "pre-tax" income in some 403 (b) plans.

 

[Sahd]

It is a non-profit hospital.

Got the offer letter shortly after this post, not much detail on the deferment options except saying she can defer up to 75% of her salary.

 

[ThoracicGuy]

It is a non-profit hospital.

Got the offer letter shortly after this post, not much detail on the deferment options except saying she can defer up to 75% of her salary.

One thing to beware of with salary deferral programs is that many of them are not secured money. I.E. if the hospital goes under your owed salary could be lost. You would be an unsecured creditor and behind a bunch of others to get money in a bankruptcy proceeding. My hospital offers one, but I do not participate.

Also the idea of having to submit a current RVU number seems unusual. Why don't they give her an RVU goal and salary to match along with a possible bonus structure to account for higher numbers? It seems like a way for them to low ball the offer.

 

[Sahd]

The hospital did make an offer before she provided her RVU, with incentive bonuses to hit median and another to exceed. A good first start for the offer, she does have her RVU data now... I can't make too much sense out of it yet, but she forwarded it to hospital.

As far as deferred income, the hospital network seems very established and would be hard to imagine it going under... but 20 years (expected retirement) is a long way to bank on that, especially in the healthcare field, so risking salary isn't quite as great as I initially thought... that is, of course, if the salary could in fact be forfeited - is this always the case?

 

[ThoracicGuy]

The hospital did make an offer before she provided her RVU, with incentive bonuses to hit median and another to exceed. A good first start for the offer, she does have her RVU data now... I can't make too much sense out of it yet, but she forwarded it to hospital.

As far as deferred income, the hospital network seems very established and would be hard to imagine it going under... but 20 years (expected retirement) is a long way to bank on that, especially in the healthcare field, so risking salary isn't quite as great as I initially thought... that is, of course, if the salary could in fact be forfeited - is this always the case?

Its my understanding that all deferred compensation plans are unsecured. I would prefer to have a 403b combined with a governmental 457 plan for savings. That would give 36k annually of secured savings. The hospital would have to be a county or state owned hospital to be able to offer the governmental 457 plan. Private hospitals can offer 457s, but they run into some issues as well.

 

[cpants]

wRVU's are units of physician production determined by CMS. Every procedure and visit code is assigned a number of wRVU's.

Salary and wRVU data is published based on national surveys for various specialties. It would be worth getting access to at least one of the surveys so you can judge the competitiveness of the offer. Ie. if she is producing in the 75th percentile for wRVU's she would expect to be compensated around the 75th percentile for her specialty--obviously weighing other factors like region, experience, job market for the specialty in your area. The hospital is using data like this to determine what they will pay her.

Many nonprofit hospitals offer deferred compensation in the form of a 457B plan which may or may not be a good idea based on your tax situation and the strength of the institution. 2017 limit for contribution is 18k. Not sure how they could offer 90% deferred compensation, but I probably wouldn't consider deferring a huge chunk based on the risks above.

 

[deleted126335]

Might also be a 457f which is also a salary deferral with high limits. Often they are crap and only useful for someone in a top bracket who is a year or two from retirement. In this case the advantage is to lower the tax bracket by drawing this deferred salary during early retirement. Non profit 457bs are better but not fully protected like 401k and 403b.

You need to find out exactly what type of salary deferral program they are talking about so you can be make an informed decision. You might also want to take the cash and pay down the student loans. If you have kids and are planning to pay for their college you might want to take the cash and front load 529 plans.