Who's the Employer?

Answers are provided by S. Derrin Watson

ASG with Separate Plans

(Posted July 11, 2002)

Question 213: My client is a partnership of four professional corporations. Each P.C. has one employee, the doctor who owns it. There are no employees of the partnership. The partnership has a 401(k) profit sharing plan on a basic prototype document, and each P.C. cosponsors the plan. Each P.C. determines its own discretionary contribution. Do the ASG rules force each P.C. to contribute equal amounts in a given year, or is it okay as-is, with different allocations to different doctors? Could each professional corporation set up its own separate profit sharing plan?
Answer: Let's start by asking the question you didn't ask. Does the plan document permit the allocation of different percentages to different employees? It certainly could, but because it's a "basic prototype" I doubt that it does. No matter what the law permits you to do, if the document does not permit it, that can be a problem.

You are right that this is an affiliated service group. Do the ASG rules force a uniform contribution percentage among participating companies? No. The only thing the ASG rules do is say that all group members are treated as a single employer.

Here you have what is, in effect, one employer with four employees, all of them highly compensated. Can you structure a plan document providing different allocation rates for each? Of course you can. Can you establish separate plans for each? Of course you can. With no NHCEs, you can do most anything you want to do with a defined contribution plan. IRC 401(a)(26) will force you to include more than one doctor in a defined benefit plan, but that's not what you're talking about here.

This is a good example of a point I make in the beginning of Chapter 10 of my book, Who's the Employer.

Perhaps the easiest way for practitioners to think of companies included in a controlled group is to treat them as two divisions of a single company. This will help answer many of the "Can I. . ." and "How do I . . ." questions that arise.

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.