Related Companies - an easy example (I think)

Dentist A owns his practice 100%; Dentist B owns his practice 100%.  They do no work for each other.

Dentists A and B are purchasing practice C and will be 50/50 owners.  Practice C hires a dentist who will be doing 75% of the work.  Dentists A and B will work there to fill the other 25% of work.  There is no referral of patients from A or B to practice C, or minimal.

Practice A has a 401(k) with PS.  Practice B has no plan.  So the question was posed to me - does practice A need to cover practice C in the A plan?  I believe the answer is no.  

Thoughts?

Thank you,

Tom

There is not enough common ownership to create a controlled group. So, the question is, does there exist an affiliated service group? A, B, and C are all automatically service organizations because they are in the field of health. There is common ownership between A and C and between B and C. The questions you need to ask are:

• Does A regularly perform services for C (or does C regularly perform services for A)?
• Are A and C regularly associated in providing services to third parties?

If the answer to either question is yes, then you have an affiliated service group. There are no quantitative tests to answer these, they are facts-and-circumstances determinations. If your client is unsure, they should hire a qualified ERISA attorney to provide an opinion.

Even if an affiliated service group does exist, that does not necessarily mean that A's plan needs to cover the employees of C (or B), it just means that those employees need to be included in testing. If A's plan could pass testing without benefiting those employees then they do not need to be covered.