Who's the Employer?

Answer: Certainly, yes. The plans will even be qualified!

Partnerships of professional corporations have been with us for a long time. It is a well recognized and legitimate technique. If they weren't available, there would be little need for the affiliated service group rules.

And clearly this would be an affiliated service group. The partnership and the corporations each would be service organizations. The corporations each would be partners in the partnership and would regularly perform services for the partnership. This is a classic A-Org style affiliated service group.

But what does it mean that there is an affiliated service group? It simply means that all of the entities will be treated as a single employer for qualified plan purposes.

Which brings us to this question: If the partnership, in its current configuration, wanted to set up a separate defined contribution plan for each doctor, could it do so? Yes. Why not? There are no nonhighly compensated employees, so you automatically pass 410(b) and 401(a)(4).

And, if the partnership as a single unit could do so, so can the affiliated service group. The only difference is that each professional corporation would have its own IRC 404 deduction limit (see Q&A 36).

For more on the affiliated service group rules, see Chapter 13 of my book, Who's the Employer?.

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