Rights and Features Disparity Question

[Guest Michael J. Sievert, CFP]

Since 1993, corporations A and B shared A's pension and profit sharing plan. A is medical billing/Acts. Rec. business with 30 employees and B is a physician group with 30 physicians. All of B's plan participants are trustees on the plan document. I am concerned that in A, the pension/profit sharing contribution is made to a pooled account and allocated by the president of A. In other words, the employees of A have no say in their investment options or allocation. On the other hand, B's employees can self-direct on an individual basis, choose among any investment firm and any investment vehicle to allocate their contributions. Some of B's employees have stock brokerage accounts with various firms and some choose management accounts with other firms. A and B's legal counsel has issued a legal opinion on this matter. Any input?

More background: Both A and B are located in the same physical office. In addition to the billing function, employees of A routinely perform administrative, accounting and payroll functions for the employees of B. 99% of A's business is performing services for B. From 1/93 to 12/98 each physician in B owned 300 shares of A. In January of this year, each physician relinquished their shares to A in an attempt to keep them out of the Affiliated Service Group rules.

[This message has been edited by Michael J. Sievert, CFP (edited 09-20-1999).]

[This message has been edited by Michael J. Sievert, CFP (edited 09-21-1999).]

[KJohnson]

The ratio percentage test under Section 410 is used to determine whether benefit rights and features are discriminatory. The right to a specific investment is a "benefit right or feature".

However since a 410 test is used, the employer may be able to use the qualified separate line of business rules and disaggregate the two employers. Also if the employers are not in the same controlled group, I would think that this 410 ratio percentage test (and therefore the benefits rights and features test) would be peformed on each employer separately.

[This message has been edited by KJohnson (edited 09-20-1999).]

[Guest mo]

There may be an affiliated service group issue here which would preclude the use of QSLOBs (1.414®-2(B)(3)(iv)). Perhaps a management group relationship if nothing else. If the groups are related by virtue of either 414(B),© or (m) and QSLOB treatment is not available, the testing would need to be performed on an availability basis and would probably not pass. Most companies in this situation deal with this by making the self-direction option available to everyone, but having self-directed accounts bear their own expenses; this would discourage the smaller accountholder from self-directing.

P.S. Another reason why QSLOBS might not work is the 50 employee requirement per QSLOB.

[This message has been edited by mo (edited 09-20-1999).]