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Controlled Group Rules for Hospital and its Subsidiary


Guest PBJ
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I do not generally work with governmental plans so I am very confused right now. In this situation, a hospital has been determined to be a governmental unit. It owns 100% of an LLC that employs physicians. The physicians are planning to lease the staff from some other organization. The LLC wants to sponsor a 401(k) that benefits to the Drs only. It was told that as an affiliated governmental unit, it is exempt from the nondiscrimination testing for qualified plans. Is this possible??

Thank you in advance for any guidance.

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I do not generally work with governmental plans so I am very confused right now. In this situation, a hospital has been determined to be a governmental unit. It owns 100% of an LLC that employs physicians. The physicians are planning to lease the staff from some other organization. The LLC wants to sponsor a 401(k) that benefits to the Drs only. It was told that as an affiliated governmental unit, it is exempt from the nondiscrimination testing for qualified plans. Is this possible??

Thank you in advance for any guidance.

See 401(k)(3)(G) governmental plans under 414(d) are treated as meeting the ADP requirements.

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"The physicians are planning to lease the staff from some other organization."

I assume that you mean that the LLC is planning to lease employees (probably at the suggestion of the physicians). Employees of the LLC (the physicians) are not the employer.

More important, someone needs to determine if the LLC is a governmental unit or an instrumentality of a government. The 100% ownership is a very important factor, but it is not impossible to have other considerations cause an affiliated entity to fail to be a governmental instrumentality. If the LLC fails, the LLC plan is not subject to the exclusions from discrimination rules that apply to government plans. I do not know how the disregarded entity rules would fit into the analysis.

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