Affiliated Service Group

[Oh so SIMPLE]

Old Medical Practice was equally owned by 6 doctors. Two leave. Old Medical Practice goes inactive on Friday, just collecting accounts receivable.

In anticipation of this, the other 4 doctors have formed New Med Practice, owned equally by them. New Med Practice hires all the staff employees that had worked for Old Med Practice, leases a new space, and resume medical practice three days later (Monday).

They do not constitute a control group. Considering only the 4 doctors that own interests in both Old and New Med Practices, they own 100% of New and only 66.67% of Old Med Practices.

Neither Old nor New Med Practices owns an interest in the other. They are therefore not an A-org affiliated service group.

Clearly, the 4 doctors in New Med Practice each own 10% or more of both practices. However, neither New Med Practice nor Old Med Practice provides any services to the other. So they are not a B-org affiliated service group.

Neither New Med Practice nor Old Med Practice receives more than 50% of its revenues for providing management services to the other. So, no IRC section 414(m)(5) affiliated service group either.

Consequently, it would appear that all of those that worked for Old Med Practice has had a separation from service that permits payout from the qualified retirement plan of Old Med Practice, despite working for New Med Practice.

Am I missing something in this analysis?

[ETA Consulting LLC]

I agree with you, except that you have a 'semantics failure' between "separation of service" and "severance of employment".

What are you going to do with the plan, if 100% of the employees are terminated, isn't that a "partial termination"? Is the new company going to takeover sponsorship of the plan (and retain predecessor service)? Is everyone's employment and vesting clock going to reset to zero?

What you are trying to accomplish?

Again, I agree with your analysis so far, but there is a difference between answering the question and solving the problem.

The answers seem to have you back at square one. It will seem to become a non issue if the new company takes over sponsorship of the plan.

Good Luck!

[Oh so SIMPLE]

Thank you, ERISAtoolkit.com.

Old Med Practice is yet the sponsoring employer of the Old Plan. It is desired that all of the workers that transitioned on Friday from Old Med Practice to working for New Med Practice on Monday will have a distributable event, despite working for New Med Practice, and for one of them who was 55 at the time, she wants to withdraw under the 72(t) exception to the 10% penalty tax--which requires 'separation from service' after age 55, before distribution.

New Med Practice is setting up New Plan, and will 'reset' everyone to zero for vesting service purposes.