Related Organizations

[TPA Bob]

As part of a plan merger we are looking at one of the plans subject to the merger.  Organization has four owners who each have established their own LLC and elected to be tax as an S Corp.  Each LLC owns 25% of the organization and is receiving guaranteed payments from the Organization.  Each S Corp is then paying W-2 compensation to the owner from proceeds received as guaranteed payments.  Current arrangement allows each S Corp to have its own retirement plan and be tested separate from the Organizations plan.

The TPA firm says based on ownership and related that they should not be considered related organizations for retirement plan purposes.  The Organization is in a service business.

I am trying to explain the technical reason they should be considered one plan for testing purposes.  Any thoughts?

[Lou S.]

It sounds like you need to look at the Affiliated Service Group (ASG) rules to determine if an ASG exists.

After some digging I would be somewhat surprised is this isn't an ASG.