ASG or multiple employer plan?

[K2retire]

Safe harbor 401(k) plan was established in 2007 for a group of doctors who represented that they were an affiliated service group. Office space and employees are shared. Doctor A is the plan sponsor, Doctor B is an adopting employer.

One doctor wants to make different contributions than the other for 2009. In response to the news that the plan requires them both to do the same thing, they have now decided that they never were an affiliated service group and Doctor B's part of the plan should be spun off into a new plan.

If they truly never were an ASG (which I doubt) what potential problems do we need to fix for the years when unrelated employers participated in the same single employer plan?

[Guest Sieve]

I think you, or someone, should analyze whether or not they were/are an ASG, and advise them appropriately. ASG determination is not just on whim, but is based on the facts--i.e., they do not get to decide how the law labels their relationship (or lack of relationship) if the facts dictate otherwise.

Besides, if each plan passes 410(b) coverage as to the discretionary PS contributions (and does the plan really require discretionary PS contributions by each entity to be identical?), then, whether or not an ASG, you can test the PS portion of the contribution separately for each entity (since the PS portion of the plan is tested as a different plan from the 401(k) portion). If, in fact, all employees are shared, then it would seem that each plan will pass coverage (since each NHCE is benefiting under each plan). With separate 401(a)(4) testing, you're going to be OK.

BTW, if the employers share employees, ASG or not, then A's contributions should be made to the shared employees to the extent of the service those employees provide to A, and B's contribution--even if different from A's contribution--should be made to the shared employees to the extent of the services they performed for B, so the allocation to each NHCE then should be reasonably equivalent.

Note that if they never were an ASG, then the plan that they established--if it did not allow unrelated employers to participate--was, then, an individually-designed plan, and may have missed timely EGTRRA restatement (among other things).

[K2retire]

We are referring them to their attorney and/or accountant for the ASG determination, as we are not in a position to make it for them. The plan is a prototype safe harbor with no allocation conditions, designed to not require any testing other than top heavy (in years when they make a profit sharing contribution). We do not offer any plans that require 401(a)(4) testing as we do not have the software to do it.

Your final paragraph gives me the detail that I would have missed. We'll pass it along for them to discuss with their advisors.