Affiliated Service Group (B-org with multiple FSOs)

[Guest TomB432]

I have come across the following situation. There is a group of unrelated veterinary specialists that are sharing the services of a number of employees. It is my understanding that each of the owners of the unrelated veterinarians (FSOs) own a portion of the company that employees the shared employees (B-org). Apparently several years ago it was determined that each of the plans sponsored by the unrelated FSOs must cover the shared employees. They include all hours worked by the shared employee in determining if the employee is eligible for the plans. I am OK with this so far. But here is the rub. In determining benefits and in testing they only include the portion of the shared employees compensation that has been determined to be associated with the work performed for that particular company? Is this legit? I don't have that much experiece with related groups in general but my gut feeling is that this is not correct?

I have a copy of the General test for one of the companies from last year (they have a New Comp allocation) and it just uses the fraction of the comp attributed for that particular company?

[shERPA]

There is IRS guidance dating back to pre-ERISA days regarding the treatment of shared employees. As I recall, the treatment you describe is consistent with that guidance. Sorry I don't recall the exact cite.

That said, if this is truly an ASG situation, then the shared employee treatment may not be appropriate. If there was no common entity and each vet simply employed the same people directly and paid their own share of wages directly it would be more like a shared employee situation. With the common entity it sounds like a bunch of overlapping B-Org ASGs or even possibly A-Org ASGs as well (depending of facts and circumstances such as the type of entity that employs the staff).

If they are a bunch of overlapping ASGs then it is common to test them all as a single employer. Although I know some make a case for testing each ASG separately. This situation sounds like it warrants its own legal analysis.

[Guest TomB432]

There is IRS guidance dating back to pre-ERISA days regarding the treatment of shared employees. As I recall, the treatment you describe is consistent with that guidance. Sorry I don't recall the exact cite.

That said, if this is truly an ASG situation, then the shared employee treatment may not be appropriate. If there was no common entity and each vet simply employed the same people directly and paid their own share of wages directly it would be more like a shared employee situation. With the common entity it sounds like a bunch of overlapping B-Org ASGs or even possibly A-Org ASGs as well (depending of facts and circumstances such as the type of entity that employs the staff).

If they are a bunch of overlapping ASGs then it is common to test them all as a single employer. Although I know some make a case for testing each ASG separately. This situation sounds like it warrants its own legal analysis.

As far as I can determine there are no overlapping Affliated Service Groups. There are a number of separate Affiliated Service Groups. The shared employees are not actually paid by the companies that utilize their services. They are paid by a separate company (the B-org), which is owned jointly by the owners of the unrelated companies (the FSOs).

[shERPA]

Don't they overlap thru the B-Org? Vet A and the B-Org are an ASG. Vet B and the B-org are an ASG. In testing A's plan, 414(m) related employers must be aggregated, so B-Org is aggregated. But B-Org is affiliated with Vet B and therefore they are aggregated as a single employer. So when Vet A goes to aggregate the B-Org, it gets Vet B too. And so on thru the group.

Also, could the B-Org also be an A-Org FSO and all the Vets A-Orgs? They are service orgs, they are regularly associated, there is ownership. If the B-org is not incorporated it may be an A-org FSO as well assuming the B-org would not be a professional service corp if incorporated.

[Guest TomB432]

Don't they overlap thru the B-Org? Vet A and the B-Org are an ASG. Vet B and the B-org are an ASG. In testing A's plan, 414(m) related employers must be aggregated, so B-Org is aggregated. But B-Org is affiliated with Vet B and therefore they are aggregated as a single employer. So when Vet A goes to aggregate the B-Org, it gets Vet B too. And so on thru the group.

Also, could the B-Org also be an A-Org FSO and all the Vets A-Orgs? They are service orgs, they are regularly associated, there is ownership. If the B-org is not incorporated it may be an A-org FSO as well assuming the B-org would not be a professional service corp if incorporated.

Yes, in that sense they do overlap.