For example:
Dr. Jones works for a practice with 7 other partners. He has some ownership. He also has income from consulting work he does outside of the practice…enough income that he’d like to establish a retirement plan and/or SEWP. Is he able to do so? Can someone with minority ownership of company A establish company B and implement a qualified plan?
I am looking to understand if/when it is appropriate to do this without causing ERISA, affiliated group or control group issues.
Given the facts presented, the simple answers to the first two questions in the example are “Yes.” But of course, nothing is THAT simple. First, it is assumed that neither Company A nor any other of its owners is an owner of Company B. Second, it is further assumed from the context that Dr. Jones’ work in Company B is in no way related to his participation in or the work of Company A. So as to the first point, Company B is not a member of a controlled group of companies, and as to the second point, it is not part of an affiliated service group.* It is important to be clear on this second point, because the IRS may choose to see a connection between the activities of the two companies, thus requiring them to be considered a single company for employee benefit (and pension) purposes. Provided that Dr. Jones can sustain his claim that the work of Company B is unrelated to the business of Company A, he should be able to establish a separate plan for himself in Company B (and any other employees of the second company). Benefit s provided in Company B’s plan(s) must relate to income earned in, by or through Company B. With respect to ERISA issues, discrimination rules should apply separately to each company, because they are neither affiliated nor controlled. In order for assets to be protected in any plan maintained by Company B, at least one non-key employee must be a participant in the plan [Yates v. Hendon, U. S. Supreme Court, decided. 3-2-2004].
* Affiliated Service Group rules only apply to service organizations. A business is automatically a Service Organization if it engages in a “specified field” such as: (a) health, (b) law, (c) engineering, (d) architecture, (e) accounting, (f) actuarial science, (g) performing arts, (h) consulting and (i) insurance. Alternatively, a business is a Service Organization if capital is not a material income producing factor.
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