Affiliated Service Group - HCE's Don't Want to Participate

[Guest Robin S. Vatalaro]

I'm a little fuzzy on this as I rarely see it in practice, thanks in advance for any help.

Law Firm PLC is owned by 5 = partners (assume taxed as a partnership and not simply an expense sharing entity). The 5 partners are attorney's. Each attorney has his own separately incorporated law firm, and each partner attorney generally derives his compensation from his own corporation. The attorney owners all operate under the name of the PLC for day-to-day business purposes.

The attorney's would like the PLC to sponsor a newly to-be-adopted 401k plan. None of the owner-attorneys want to participate, they simply want this benefit so their employees have access to a 401k plan. All of the non-owner attorney's (several) and admin staff are employed by the PLC.

I think I have an affiliated service group? If I use a prototype and the individual attorney corporations simply don't adopt the plan, does that mean that the five owner attorney's are then simply just ignored for plan purposes? Or do I have to put them on the ADP test w/ whatever their net earnings from self employment (taking into account SE tax adjustment) is from the PLC (assuming that's a positive number).

I realize if they don't participate their ADP is zero which could help things (if the owners have to show up on the test). Also if the individual attorney corporations want to exclude themselves from participation by not adopting, can that be done in a prototype environment? I'm trying to determine how to handle the set up mechanically-speaking.

[alanm]

Probably, the five attorney entities and the PLC is one affiliated service group. Whether they sign or not, all plans should be aggregated for testing. The problem will be that some of those attorneys have probably been maintaining individual sep plans without including the PLC employees. I would find out about the other plans first.