Dentist A and Dentist B are both sole-props (no common ownership). They share employees as follows: They also share office space:

Dentist A employs 5 full time employees and sponsors a profit sharing plan.

Dentist B employs 2 of Dentist A's 5 employees on a part-time basis. Dentist B sponsors a retirement plan in which he is the only participant (the two employees never met service requirement).

The shared employees receive separate W2s from each of the dentists.

Question is: Do the "Affiliated Service Group" rules apply here. I would think not, since there is not common ownership. I would think it is okay for Dentist A and Dentist B to sponsor two separate retirement plans covering only their eligible employees?

Just needing confirmation or correction if neccesary!! Thanks.

There was a Revenue Ruling addressing this exact situation that was issued in the late 1960s. I seem to recall it required that the employees' hours be split between the different professionals.

If you have the ERISA Outline Book look to the definition of shared employee. The promulgations Kirk is referreing to are Rev. Rul. 67-101 and 68-391 (obsolete). Basically, there is little guidance in the area according to Sal.

IRS issued proposed shared employee regs. under Code Section 414 in about 1989 (as I recall). Those were withdrawn 3 or 4 years later.

I believe that the correct treatment is to look at each employer-employee relationship separately. The key is tracking the number of hours the employee works for each employer.

An employee may work for a hospital half-time and for a doctor at the hospital half-time (for example), but there is no argument that justifies bring such employee into the hospital's plan if he or she doesn't qualify separately.

For those who wish to be safe, I suggest that clients in similar situations have the employee on one primary payroll only, and that the other employer reimburse the cost of providing benefits as well as salary. The employee would then be a leased employee vis a vis the second employer, and would be evaluated as to his or her rights under that plan (offset by benefits provided by the primary employer's plan) while receiving benefits from the primary employer's plan.

However, the above certainly is not required. If I were an aggresive dentist in the situation of your clients, I would have each of my employees work 900 hours per year and adopt a plan with 1000 hour eligibility and vesting requirement. 2 dental assistants or hygienists working 900 hours per year are cheaper than 1 working 1800 hours.