New plan for partner of old entity

[Guest Gordy]

Dr. is a 12 1/2% owner of a medical group corporation that has a 4/30/05 year end. Corp has a 401(k) Safe harbor plan with a 3% contribution, year end employment is required for match and profit sharing. Dr. received a full contribution for the 4/30/05 year and continued to defer through 8/31/05 when he terminated to accept a position (under and independent contractor agreement) with a local hospital.

He wants to start up a defined benefit plan for his new sole proprietorship. For 1/1/05 through 8/31/05 he has deferred about $13,000 and will receive a safe harbor contribution. There will be no employees in the sole proprietorship.

For the 2005 year, what effect will the (1) deferrals have on the db plan and (2) the corporate contributions have on the sole proprietorship db plan?

[Blinky the 3-eyed Fish]

Being the medical group is not a controlled group and certainly appears not to be an affiliated service group with the new sole proprietorship, the answer is no effect whatsoever. They are not related entities, so it is the same as if he went to work for Taco Bell.

[Guest TGeer]

Blinky--

Great name, great answer.

May I add that they repealed the 415 combined limits, so DB and DC only touch where contributions affect compensation, becasue of a definition that doesn't count deferrals or where comp is reduced by reducing salary/bonus in a total comp economic deal (which a prpritership always is).

This avoids having to ask if the old practice and the doctor's practice under the new arrangement make them 414 related to the hospital, and then pondering the implications of that possibility.

[Blinky the 3-eyed Fish]

Thanks for the appreciation.

I didn't understand your last sentence though. Irregardless of 415(e), they would need to know with certainty that the sole prop is not a related entity with the medical group. Otherwise the new plan wouldn't pass 401(a)(26) and wouldn't pass coverage without aggregation with the medical group's plan. And then some general testing issues would surface.

Of course in this case it seems fairly obvious they aren't related entities and such they are free to live their lives in unfettered bliss.