Affiliated Service Group - Partner Leaving / Impact

[BeanCounterBlues]

Facts:

ABC PLC is owned 20% by five attorney's who each have their own practices (individual Schedule C's). The PLC handles all admin functions, employs the employees etc. The five attorney's and all the ee's of PLC participate in the ABC 401k plan.

One attorney leaves and will no longer own 20% of PLC. He will lease the employees from the PLC. EG the ee's will still get their paycheck from PLC and the leaving attorney will pay a fee to PLC for the services used. He does not have any equity stake any longer in PLC however.

Question:

My question is, is the leaving attorney simply considered a terminated participant from the PLC plan? The employees that continue to be employed by the PLC and are leased from the PLC to the leaving attorney (note these employees also continue to work for the other four attorney's as well) continue to participate in the PLC 401(k) plan correct? The leaving attorney can no longer participate, correct again?

This seems too simple, but on first glance this appears to be nothing more than a terminated participant situation. I just want to make certain that this arrangement doesn't continue to cause the leaving attorney to still be a member of an affiliated group.

I am not overly familiar w/ ASG rules (aside from finding them very confusing). Thank you for any opinions.

[J Simmons]

The employees working for PLC will continue to participate in the plan despite the withdrawal of the one attorney and his/her no longer owning any part of the PLC. They are yet employees of the PLC, provided it is the PLC and not the withdrawing attorney who then has primary control over them.

The leaving attorney may also continue to participate in the plan, depending on how the plan documents read. For example, the plan documents might continue that participation if his/her C corporation is yet listed in the plan documents as a sponsoring/participating employer. The attorney's C corp no longer being part of the control group of the PLC and other C corp's means that the 'single employer' plan would now be a multiple employer plan governed by 413c.

If the withdrawing attorney doesn't want to participate any longer, then the plan can be amended (if necessary) to de-list his/her C corp as a sponsoring/participating employer. Since that attorney would no longer be working for an employer that sponsors the plan, it ought to be a distributable event.

[WesleyT]

Let's say the withdrawing attorney didn't work for the sponsoring employer, but was just part of the ASG. He can still be removed as a participating employer, but now he wants to start his own plan.

How does the attorney get his money? He doesn't seem to qualify for a distributable event. Would the assets be eligible for an employer directed transfer from the ASG's plan to the attorney's new plan? (Subject to the protection of the 411(d)(6) benefits)

[GBurns]

R Vatalaro

"individual schedule C's" ? Are you sure ?

Notice that J Simmons responded regarding C corporations.

The type of business entities involved could be relevant. If the various practices are corporations, you might already have a multiple employer plan.