By Dr. Patrick Grace, Guest Writer
For many physicians evaluating their employment opportunities, one of the most important benefits they consider is their retirement accounts. While self-employed physicians frequently open solo 401(k)s or SEP-IRAs for ample retirement savings space ($70,000 in 2025), employed physicians are often left with a 401(k) or 403(b) and its smaller annual $23,500 limit for employee contributions [2025 — visit our annual numbers page to get the most up-to-date figures]. What many physicians may not consider is whether their contributions are mandatory and what this does to their potential for retirement savings.
Why Make a Retirement Account Mandatory?
When your employer offers a 403(b), it may choose to make a certain level of contribution mandatory for all its employees. This is usually paired with some level of employer match. At my own institution, 5% of each employee’s salary must be saved within our 403(b), and, in turn, the employer matches it 200%, essentially putting another 10% into the same 403(b). After three years of employment, the matching amount is “vested.”
You may be skeptical that any business (even a nonprofit organization) would do this out of the kindness of its heart. Like any benefit, it is provided to recruit and retain its employees. In the case of the matching retirement, it also functions as a pair of “golden handcuffs” that help keep employees retained for at least the vesting period.
My mandatory 403(b) is a win for both my employer and me. I (and all other full-time employees) are strongly incentivized to stay employed for at least three years. When I first considered my employment, I planned to participate in the 10% matching contribution regardless of whether it was mandatory (it’s “free money!”). It wasn’t until making a phone call to Human Resources and its benefits office that I came to fully understand the benefit that I could reap from the matching retirement being mandatory. Once I found out that my 403(b) also came with low fees and low-cost index fund options from Fidelity, I couldn’t wait to participate.
The other major benefit that mandatory contributions serve is to keep the plan running by ensuring that it passes nondiscrimination testing (NDT). NDT’s function is to ensure that a retirement plan is functioning to the benefit of all its employees and not simply the most highly compensated employees of a particular business. Mandatory retirement contributions help ensure that, during the Actual Contribution Percentage (ACP) test, there is not a higher proportion of highly compensated employees (like physicians) participating in retirement plans than all the other employees.
More information here:
Comparing 14 Types of Retirement Accounts
Why You Should Max Out Your Retirement Accounts
Why Does This Matter?
One easily missed piece of information about the annual employee contribution limit to a 401(k) or 403(b) is that it is the elective employee contribution limit. Let us consider two employed jobs—one with and one without a mandatory contribution.
Consider a physician earning $300,000 per year. Their employer offers an elective 403(b) with a 100% match up to 5%. The doctor can elect to save the 5% ($15,000), and their employer will match it ($15,000). They then decide they would like to save more, up to the $23,500 limit. They have already elected to contribute $15,000, so they can save an additional $8,500. In total, they can save $38,500 per year in their 403(b).
Now, consider the other physician also earning $300,000 per year. Their employer has a mandatory 403(b) with a 100% match up to 5%. The doctor must save 5% ($15,000), and their employer will match it ($15,000). They then decide they would like to save more. They have not saved any amount of money in a voluntary 403(b), so they may elect to save an additional $23,500 in their voluntary 403(b). In total, this doctor can save $53,500 in their 403(b).
That’s right. Mandatory 403(b) contributions and the matches made by your employer do NOT count toward the $23,500 limit of 2025.
It’s not hard to see how a 403(b) plan for an even more highly compensated employee or with an even more generous employer match could hit the maximum limit for all employer and employee sources combined—$70,000 in 2025. Finding this much deferred compensation space is typically the purview of the self-employed physician, but employed physicians with mandatory contribution plans can find themselves in a similar situation.
What About 401(k)s?
There is a debate ongoing as to whether an employer can mandate 401(k) contributions in a similar manner to a 403(b). At least one WCI reader has indicated that he is in an employed situation where this is the case, but the new 2025 guidelines by the IRS on auto-enrolling employees into 401(k) plans indicate that these are still elective contributions. Regardless, most hospitals in the US function as nonprofits, making the 403(b) the most common plan type for employed physicians.
Nonprofit Employees Might Have Even More Space
Not only do nonprofit employees potentially have access to mandatory 403(b)s and their deceptively deep wells, but they often also offer non-governmental 457(b) plans. While WCI has already written extensively on non-governmental 457(b) plans in the past, it’s worth remembering that these contributions are subject to creditors of your employer, and the financial health of your institution should be carefully considered before contributing. In addition, your employer may require you to distribute your 457(b) after separating from them, making for a messy tax situation that you’ll need to navigate. It’s worth making a phone call to Human Resources to explore your options if you need to separate from your employer.
That said, many nonprofit health systems are supported by state governments and are likely as stable as any nonprofit organization to contribute to a 457(b). For physicians working at a trusted nonprofit (after determining your distribution options after separating from employment), this would provide an additional $23,500 of tax-deferred space to invest for retirement. Because the annual contribution limit for a 457(b) is not shared with the 403(b), you do not need to worry about the $23,500 voluntary employer contribution limit or $70,000 total limit for 403(b).
More information here:
Wife vs. Husband: A Retirement Account Showdown
Best Retirement Savings Plans for the Self-Employed
What Do I Do with This Information?
It’s natural to wonder why we’re discussing the concept of a mandatory retirement account. After all, you, as an employee, don’t get to decide whether the program exists or if you get to participate in it. There are two primary uses:
- Evaluating potential jobs
- Advocating at your job
For No. 1, we’ve already gone through one hypothetical situation where a job with a mandatory contribution may be more optimal for a physician seeking additional tax-deferred space to invest. Equally relevant is when comparing jobs that have very different employment structures. For my own career, I began as a self-employed physician, and a large “benefit” that I considered was access to my own solo 401(k). I thought, “Surely, I can save more for retirement as a self-employed physician than as an employee.” Imagine my surprise when I took a job at the University of Kentucky and found that I could save nearly an identical amount in my 403(b)s plus access to a 457(b). I found myself in the unexpected position of saving even more for retirement as an employed physician than as a self-employed one.
For No. 2, I think every financially minded physician working at a nonprofit should consider volunteering for their organization’s employee benefits committee. This is the space to advocate for important benefits—such as access to low-cost index funds and to avoid expensive annuity options, often sold to make commissions for salespeople. This is also the space to advocate for the benefit of mandatory contributions for all employees. While not a simple political agenda, we’ve already outlined how mandatory accounts could benefit a whole organization. You may just be the person to help bring it to your own.
As more attention is brought to the role of tax-deferred retirement accounts in the US and the growing movement to make contributions the “default” rather than an “opt-in,” it is more important than ever to understand what retirement accounts are available to you and how to take advantage of them. Learn about the accounts offered at your own workplace, and advocate for a hidden benefit you may not have realized is available.
Do you have or have you ever had to make a mandatory retirement contribution? Did you find you could save more money? Are there any drawbacks to making a contribution mandatory?