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Affiliated service groups and 409(A)


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So, there is a segment of a business that that is being spun-off and a new company will be the employer.  The employees in the new company are being transferred as part of the transaction.  The business selling off will retain 9.9% ownership in the new company and an affiliated service group relationship will exist post sale.  We've settled that under 409A a bonafide separation of service will occur under the NQDC (they can get a distribution).

But is it true that companies in the same service group may be treated as a single employer under the Code, but not as a single employer under ERISA?  Meaning no termination of employment under the qualified plans or health plans?

Should also mention that it is intended that the "significant portion" test regarding the provided services under the 414(m) rules is met, in that threshold is 5% so we shouldn't have to aggregate employees.  

Wasn't even sure where to post this since the question is pronged along 2-3 tracks.  And yes, we are seeking counsel as well, but I always like the perspective gained here. Confusing!  

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pcbenefits007, I'm not really sure what your question is, but ERISA does have a controlled group rule that is basically the same as the Code's, but does not have an affiliated service group rule.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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