Subscribe Now!
Free Daily News, Jobs, Webcasts, Discussions
Post and Distribute
Your Jobs
ARPA News
ARPA Webcasts

Featured Jobs

Product Support Consultant

ftwilliam.com part of Wolters Kluwer Legal & Regulatory
(Telecommute)

ftwilliam.com part of Wolters Kluwer Legal & Regulatory logo

Retirement Plan Administrator

Bates & Company
(Telecommute / Winter Park FL)

Bates & Company logo

Employee Benefits/Health and Welfare Attorney

Miller Johnson
(Telecommute / Grand Rapids MI / Kalamazoo MI / Detroit MI)

Miller Johnson logo

Retirement Plan Administrator (Account Manager)

Kushner & Company
(Telecommute / Portage MI)

Kushner & Company logo

DC or DB Administrator

Farmer & Betts, Inc.
(Telecommute / Tacoma WA / Tualatin OR / Littleton CO)

Farmer & Betts, Inc. logo

Retirement Plan Administrator

RSW & Associates
(CT / NJ / NY)

RSW & Associates logo

DB/DC Administrator

Primark Benefits
(Telecommute / Burlingame CA)

Primark Benefits logo

401(k) Consultant

TPS Group
(Telecommute / North Haven CT)

TPS Group logo

401(k) Implementation Manager

Human Interest
(Telecommute / San Francisco CA)

Human Interest logo

Director of 401(k) Implementation, Core

Human Interest
(Telecommute / Mill Valley CA)

Human Interest logo

Plan Document Specialist

Jocelyn Pension Consulting
(Telecommute / Boulder CO / San Rafael CA)

Jocelyn Pension Consulting logo

Director of Finance

NYCDC of Carpenters Benefit Funds
(New York NY)

Retirement Plan Administrator

My Benefits, LLC
(Telecommute / Daphne AL / Atlantic Beach FL)

My Benefits, LLC logo

Retirement Plan Consultant / Relationship Manager

Associated Pension Consultants
(Chico CA / Sacramento CA)

Associated Pension Consultants logo

DB Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

DC Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

Free Newsletters

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

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

Service Crediting in Affiliated Service Group

(Posted July 24, 2017)

Question 346: Dad owned dental practice. Son was independent contractor for practice. Son has bought the practice. Son plans to start a new plan, but to disregard for eligibility the years of service of the practice employees while Dad owned the business. Can he do it?

Answer:

No, because the two businesses were an affiliated service group.  To explain this, let me set forth the question in full as it came to me.

A dentist pays his dentist son a 1099 for work that the son does at the father's office. This relationship goes on for about 2-3 years. The son has now bought the practice from his father, kept all the existing employees and wants to start his own retirement plan. He wants to make his father's employees work for one year before entering his plan, but obviously count his service as an independent contractor in establishing his own plan. It would seem that either by attribution or through the ASG rules that he would also have to count the service of the employees with the father, thereby those employees would be immediately eligible for his plan. This seems like a relatively common occurrence, but we rarely see that the son wants to exclude employees who have been working for his father for years and have participate in the father's plan already.

As the question suggests, there are several ways that Son might be compelled to count the service of Dad’s employees. For example, suppose Dad’s practice was incorporated and Son bought the stock. In that case, the employees have not changed employer and there is nothing that allows the corporation to disregard their service. Alternatively, suppose Dad’s practice had a qualified plan, and the benefits of the employees are transferred to the Son’s plan. Code §414(a) compels Son to count the service in that case.

But on the facts we are given, the most immediate tool to require that Son count the service is the affiliated service group (ASG) rules. Son and Dad each own a service organization. Son regularly performs services for Dad (evidenced by Form 1099-MISC). Son is deemed to own Dad’s interest in the business via attribution under Code §318. On these facts, Son is an A-Org to Dad’s practice and an ASG exists.

The consequence of ASG status is that Son’s practice and Father’s practice are treated as one business. As far as the retirement rules are concerned, the employees have been Son’s employees for years, and there is no authority for him to disregard their eligibility service while Dad was paying them.

Incidentally, this answer assumes that the characterization of the Son as an independent contractor was accurate. Let’s just assume for the moment that Son was actually an employee of Dad, notwithstanding the 1099. (After all, the tax form merely shows the relationship the parties believe they have established, and is not binding on the IRS.) In that case, disregarding the employees’ service ends up disregarding the Son’s also, and is quite counterproductive.

Chapter 19 of the newly released 7th edition of Who’s the Employer, available exclusively at Erisapedia.com, addresses service crediting in detail. Chapter 13 thoroughly outlines the ASG rules.


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.


Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2021 BenefitsLink.com, Inc.