Controlled Group That Became Uncontrolled

[Guest merlin]

A nursing home is owned 100% by father. Father also owned 51% of an assisted living facility. His adult son owned the other 49 %. Since father is deemed to have owned son's 49%, the two entities were a controlled group. The nursing home sponsored a 401k plan, which the al facility also adopted. The plan document is a standardized prototype. On 1/1/02 the father sold his interest in the al facility to his son, so no more controlled group, now a multiple employer situation. The protoype cannot be used for a multiple employer plan, so unless the two entities are now an affiliated service group, I have a document failure. Questions:

1.Can a nursing home or an assisted living facility be considered a "service organization"? I think the answer would be yes, because capital is not a material income producing factor. How much equipment is required to run a nursing home or an assisted living facility? I have no idea.

2.Significant portion of business? I don't know, trying to find out, but they do refer patients back and forth.

3.Common ownership? The B-Org must be owned at least 10% by persons who are HCEs in the FSO, using the attribution rules of 318. Under 318 there is no exception to parent-child attribution, so father and son are each deemed to be 100% owners of both entities. Am I runderstanding this requirement correctly?

4.The son is on both payrolls and effectively runs both facilities. Does this have any bearing on asg status?

[Belgarath]

I liked the title so much that I just had to respond. Seems to me like EVERY group I work with is uncontrolled...

First, my longstanding advice is to consult an ERISA attorney. I'm not too swift on these CG/ASG questions.

But FWIW, it seems likely that this could be an ASG. Under the regs, a business is automatically considered a service organization if it engages in the field of "health." While I'm by no means certain that an assisted living facility qualifies, it would seem reasonable that it might - I suppose it might depend upon the level of "assisting" that takes place. If it just means grocery shopping, maybe not, and then you'd have to get into the capital angle.

As to #2, facts and circumstances, unanswerable, (by me, anyway) without specific knowledge of situation.

#3 - Agree.

#4. It might, in terms of "regularly performing services" requirement. Again, I think facts and circumstances.

Good luck! And the client could request a determination letter on this, maybe, if necessary?

[Guest merlin]

Belgarath,

Thanks for the reinforcement. Two "I think so"s, while not definitive, are better than one. In the normal run of events I, too, would recommend an attorney and/or applying for an IRS determination of asg status, but this case was brought to us by a financial guy after the 2002 5500 was flagged by the DOL for lack of an accountant's opinion. We're trying to work with the auditor who's already under the gun, and now she's been completely thrown by the TPA/recordkeepr's comment that the prototype document can't be used to accomodate a multiple employer plan. So we're in the unusual position of trying to find a basis for keeping the a/l facility in the plan as a related entity.

BTW, apropos your request of Tom Poje in another thread to teach you the theory of relativity, I offer the follwing:

There was a young lady named White

Who traveled much faster then light.

She left home one day

In a relative way,

And returned the previous night.

[Belgarath]

Clever!

[stephen]

Merlin,

If you are still looking for another opinion you may want to post your original on the Q&A column by Derrin Watson.

[SoCalActuary]

It may be worthwhile to look at the capital required to run an assisted living facility, since you are primarily providing housing, with attendent services. This is less intense than full hospitalization, which is clearly health related. What portion of the AL facility expense is return of capital or interest on capital?

Of course, that does not help your goal here to keep one document in place for both.