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Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Classic ASG with multiple plans

(Posted June 22, 1999)

Question 27: Five physicians (4 operating as professional corporations and 1 operating as a sole proprietor) formed a limited liability partnership. The partnership provides billing and collection services and pays the overhead expenses of the practice. Each of the PCs owns a 22.75% interest in the partnership; the proprietor owns a 9% interest in the partnership. The partnership employs one staff person. Each of the partners receives a monthly cash draw in ratio of their ownership percentages and an annual K-1 that reports his/her/its share of the partnership's income. 100% of the physicians' revenue is earned through the partnership.

Prior to forming the partnership, each physician practiced independently and maintained his or her own retirement plan. Each plan was different. One had a money purchase plan, one had a profit sharing plan, one had a paired plan, etc. Each of the physicians would like to keep the existing retirement plans and continue contributing to them. In addition, they would like for the partnership to create a retirement plan to provide some benefit to the employee of the partnership.

Question. Would all 6 employers constitute a controlled group? If so, is there a "safe harbor" plan design for the partnership to adopt such that the coverage requirements would be automatically met (i.e., a money purchase plan with a contribution formula equal to the maximum contribution that a physician would receive in his or her plan)? Is this a common situation?

Answer: It is not a controlled group. It is, however, a classic affiliated service group.

Before SBJPA, I would have said that you need to consolidate into one or two plans. Thanks to the elimination of 401(a)(26) for defined contribution plans, each business can continue to maintain its own DC plans, so long as they can pass 401(a)(4) and 410(b) after aggregating with the plan for the staff member.

Obviously, since we are talking about DC plans, a 25% nonintegrated money purchase plan for the staff member is going to make sure that all the doctors pass. Can you do better than that? Probably -- but you'll need to crank the numbers with the specifics of your situation.

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.