Probably an Affiliated Service Group

[Dougsbpc]

We have a law firm client with 5 equity partners, 5 non-equity attorneys and about 50 employees. They sponsor a 401(k) Plan.

One of the 5 non-equity attorneys who was not even an HCE has now become an equity partner owning 20% of the firm. He incorporated so now his corporation is the 20% equity partner in the law firm. Apparently at about the same time his corporation adopted a SEP.

We believe there is an affiliated service group between his corporation in which he is the 100% shareholder and the Law Firm of which he has a 20% equity interest in.

We believe his SEP will need to consider all employees of the law firm to meet coverage under 410(b). This would mean his SEP would need to cover about 20 employees of the law firm.

Anyone agree or disagree with this?

Thanks.

[John Feldt ERPA CPC QPA]

ASG, of course. But maybe they should get a legal opinion just to make sure. Maybe they know a law firm that employs an ERISA counsel.

Happens a lot, surprisingly, although anecdotally I see it more with medical professions. 

[CuseFan]

I thought everyone who worked at least 3 years making more than a certain amount had to be covered - not the 410(b) rules. Also, if on the 5305 model cannot have another non-SEP plan, so isn't that also an issue?

[John Feldt ERPA CPC QPA]

Agree. It’s not uncommon to see these firms make these mistakes, it happens a lot.