Change in Sponsor's Business Arrangement

[J Simmons]

Pathology practice LLC owned by 4 doctors, had 12 other (NHCE) employees, operated a lab and sponsored a 401k safe harbor, cross-tested plan. Effective 5.1.2024, the practice LLC sold its business to Hospital, which employed all 12 staff people that had worked for practice LLC. The doctors remain employed by the practice LLC, which contracts their services to Hospital. I have little to no doubt that the practice LLC/doctors meet the IRS definition of 'hospital-based physicians'.

One of the doctors bought 1 share of Hospital. So, there is likewise no doubt that an affiliated service group now exists.

Hospital sponsors a plan that now benefits the 12 staff employees. It provides a 5%-of-pay profit sharing contribution to all Hospital employees, and sports a 401k safe harbor feature with a safe harbor match.

Here are some of my questions:

1-The practice LLC's plan can aggregate/is aggregated with the Hospital plan, right?

2-That permits the doctors to make 401k deferrals to the practice LLC's plan, to the 402g maximums, right?

3-Can the practice LLC make cross-tested profit sharing contributions to its plan for the doctors, since the employees of Hospital are receiving an amount from Hospital that serves as a gateway minimum?

4-For 2024, can the practice LLC plan compute profit sharing contributions and apply nondiscrimination rules just to the period of 1.1.2024-4.30.2024 for the 12 employees AND THE DOCTORS?

[Lou S.]

1 - If it is an ASG and it sounds like it is, you could do permissive aggregation. That would probably require cooperation with the Hospital Plan.

2 - Assuming its safe harbor or passes k testing as a group, yes.

3 - Again, permissive aggregation and you would likely need Hospital Plan approval and would need to to 401(a)(4) testing on the group. Sure it probably passes but you know when you assume. Also you might have a BFR with respect to the LLC plan if they are not the same as Hospital plan.

4- I don't think so, not without having done a short plan year.  You can look at the transition rules and maybe an exception will apply for the year either under 410 transition (but I think your coverage change rules that out) or under the business transaction rules (but I think that would require termination the Dr LLC plans, i could be wrong).