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Answers are provided by S. Derrin Watson
Effect of ASG on SARSEP
(Posted November 3, 1999)
Question 33: A 100% owner of a veterinary clinic (business A) has an established SAR-SEP; his friend is a 100% owner of another veterinary clinic (business B), that also has an established SAR-SEP plan. These owners intend to open a third clinic (business C), with each of them to be a 50% owner of business C. What type of coverage will be required for the employees of business C?
Will they have to be covered under one of the original SAR-SEPs, or would all three businesses have to be covered under the same (new) plan?
Answer: This situation will not result in a controlled group or a group under common control under 414(b) or (c). Could it be an affiliated service group ("ASG") under 414(m)? Yes, maybe.
Generally, two tests must be met for a traditional ASG. In general terms, first, there must be some coownership. That clearly exists in this case. Second, there must be an ongoing relationship between the business at some level. For example, to have an ASG between A and C, A would need to:
In the situation you pose, I don't see where either of those is met. Presumably, C's clinic is in another building, with its own staff and its own clients. I would guess that each doctor receives an individual W-2 for the work done at the clinic. If so, then you don't have an ASG.
- Regularly perform services for C, or
- Regularly be associated with C in providing services for third parties.
On the other hand, suppose business A is a corporation, and payment for vet A's services goes to his corporation. In that case, the corporation would regularly be providing services to C and hence there would be an ASG. So, it all depends on the facts, and the question does not have enough information to resolve the issue.
The ASG rules apply to SARSEPs as well as to qualified plans. If A B and C are an affiliated service group, then they are treated as a single employer. Since SARSEPS have to include all eligible employees, you would need to have a single SARSEP for everyone, if it is an ASG.
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
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