Can MDs keep their plan after moving employees to ASG?

[drakecohen]

In what might become a common situation for insurance reasons:

Medical practice (A) with two doctors and 5 regular employees has a SH 401(k) plan where the doctors maximize.

As of 2/1/15 the 5 regular employees of A will be on the payroll of an ASG (B) which has about 100 other arrangements like this with other medical practices. B maintains a 401(k)-only plan.

Questions:

1) Can practice A continue their plan if they include those 5 employees going on company B payroll?

2) Any other issues?

Thank you.

[Kevin C]

Not sure I understand the facts. Did A somehow join an affiliated service group with B, or did they hire B as a PEO?

[drakecohen]

Not sure I understand the facts. Did A somehow join an affiliated service group with B, or did they hire B as a PEO?

B considers itself an Affiliated Service Group. A's former employees are now B's W-2 employees (except for the doctors who still get their W-2s from A).

Since B's plan has no company contributions the question is what the doctors in A can do:

a) Keep their plan as is and include B's employees as if they were their own; or even

b) Keep their plan only for themselves knowing there would be no company contributions allowed but make their $24,000 in 401(k) deferrals.

[Kevin C]

Which entities does B consider itself to be an Affiliated Service Group with? What did B tell A their options are?

So far, you've mentioned insurance and payroll for A's regular employees being done by B. To me, that screams PEO relationship and you haven't said anything that changes that impression.

Are the regular employees still common law employees of A? Who hires and fires them, tells them what to do and when, etc.

It wouldn't surprise me to find that a PEO is still running a plan as a single employer plan in spite of Rev. Procs 2002-21 and 2003-86. We came across one in 2009 or 2010 that was still operating as a single employer plan. They pitched to one of our self-employed clients (with no employees) and promised he could do employer contributions as high as 35% of compensation in their plan.

[drakecohen]

A was told that the affiliated Service Group rules described in Treas. Reg. § 1.414(m) provide that all employees of the members of an affiliated service group shall be treated as if a single employer employed them and thus A couild not maintain a separate plan from B.

[ESOP Guy]

Not sure I understand the facts. Did A somehow join an affiliated service group with B, or did they hire B as a PEO?

B considers itself an Affiliated Service Group. A's former employees are now B's W-2 employees (except for the doctors who still get their W-2s from A).

Since B's plan has no company contributions the question is what the doctors in A can do:

a) Keep their plan as is and include B's employees as if they were their own; or even

b) Keep their plan only for themselves knowing there would be no company contributions allowed but make their $24,000 in 401(k) deferrals.

I am not aware of any situation where b above would be true. If you thought they can't make employer contributions because of what is going on they can't make 401(k) deferrals. One of the most forgotten or misunderstood part of 401(k) law is that even though they are coming from people's pay checks 401(k) deferrals are still employer contributions. So if you think there is a situation where they can't make ER contributions they can't make deferrals.

I would add it would be clear that once the plans became T.H. and there were 401(k) deferrals a 3% ER contribution would be due.

Based on your last comment it sounds like you have a situation where you would have to test everyone as if they are in one plan so the Dr. appear to either be out of luck or need to find a way to cover the staff along with themselves.

It also sounds like people need to get a better understanding of the exact relationship between A and B.

[david rigby]

The issue is stated as "can they keep their plan", but I wonder if the real issue is "can they keep a particular feature of the plan"?

Just a hunch, but that particular feature might be a brokerage window.

[Kevin C]

A was told that the affiliated Service Group rules described in Treas. Reg. § 1.414(m) provide that all employees of the members of an affiliated service group shall be treated as if a single employer employed them and thus A couild not maintain a separate plan from B.

If A is a member of an affiliated service group with B, they are treated as a single employer. That doesn't mean they can't have a plan only covering employees of A. It means coverage testing has to be done to determine if Plan A can stand on its own. If they try to only cover HCEs in Plan A, it won't work.

There must be more to the relationship between A and B than just payroll and insurance for the employees for them to be an affiliated service group. That's something B's ERISA attorney should have worked through when they started with this structure. If A has questions, I would suggest they ask B for a copy of the ERISA attorney's opinion that the various entities in this relationship are an ASG. The opinions I've seen were very clear about why they are or why they are not an ASG.

[K2retire]

If A has questions, I would suggest they ask B for a copy of the ERISA attorney's opinion that the various entities in this relationship are an ASG. The opinions I've seen were very clear about why they are or why they are not an ASG.

In my experience, they are typically asking because they don't want to pay an ERISA attorney. Of course, in that case they often get exactly what they paid for!