Retirement Plan Relationship Manager ERISA Services, Inc.
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Trucker Huss, A Professional Corporation
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RTD Financial Advisors
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Plumbers Local Union No. 1 Benefit Funds
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Employee Benefits & Executive Compensation Associate Attorney Polsinelli PC
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Kentucky Trust Company
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Retirement, LLC
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Retirement Plan Documents Specialist Loren D. Stark Company
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Carpenter Morse Group
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Retirement, LLC
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Employee Benefits and Executive Compensation Associate Attorney Verrill
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Jr Retirement Plan Administrator/ Administrative Assistant Hochheiser Deutsch & Co, Inc.
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EPIC: TPA/DPS
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Retirement Plan Legal Specialist Pentegra
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Retirement Plan Administrator (TPA) Retirement Plan Consultants
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Nicholas Pension Consultants
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Bates & Company
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Farmer & Betts, Inc.
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EPIC Retirement Plan Services
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Pentegra
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Administrator/Consultant (DC and DB) TPA Professionals
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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.
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. |
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.
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