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Control Group Determination


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#1 M. Martin

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Posted 06 April 2004 - 03:01 PM

A, Inc. is owned equally by 3 Partners.
A, Inc. owns 50% of Company B, A Joint Venture
Company C is owned 100% by one individual
Company C owns the other 50% of Company B

Both B & C have their own 401(k) plans. The document for each plan contains language specifically excluding the employee's of either company B or C.

Is this a Control Group? If yes, can the ADP/ACP testing be performed separately for each plan or must all testing be performed on an aggregated basis?

Any help is greatly appreciated!

#2 Mike Preston

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Posted 06 April 2004 - 03:26 PM

Trick question?

As to the controlled group issue, if the individual that owns C is not one of the individuals that owns A, then it isn't a controlled group. I didn't analyze it with the individual owning C being one of the individuals that owns A.

However, you don't mention what businesses they are in so it is impossible to tell whether the two entities (B & C) are in an affiliated service group.

As to whether the plans are aggregated before testing under ADP that would depend on whether the plans satisfy 410(b) on their own. Even if they are in a controlled or affiliated service group, the two plans might individually satisfy 410(b). If they do, you can test them separately.

So, the questions back at you are:

1) Is the individual that owns C one of the individuals that owns A?

2) What are the forms of organization for A, B and C?

3) Are B and C in an affiliated service group? Or, what businesses are B and C in?

4) If B and C are affiliated or controlled, would Plan B and Plan C independently satisfy 410(b)?

#3 M. Martin

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Posted 06 April 2004 - 04:41 PM

Thank you for the quick response, additional details are as follows:

Individual C does not own any part of A
Type of business - law firms
Each plan independently satisfies 410(b)

However, a short time after posting my original question, I just received this information concerning the employees: all staff share a common employer - Company B, the Joint Venture. There are two offices, the West Coast office provides staff services to Company A and the East Coast office provides services to Company C.

So, now appears to be a single employer with two plans and not a control group issue as originally thought. Under this scenario, the plans can still be tested separately for ADP/ACP so long as 410(b) passes independently but would the plans need to be aggregated for top heavy testing? Key employees are the 3 Partners of Company A who participate in the West Coast plan and the owner of Company C who participates in the East Coast plan.

#4 Mike Preston

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Posted 06 April 2004 - 06:07 PM

It is highly likely, based on the information you have provided, that there is a single affiliated service group. However, it is not 100%. You should have the organizational structure reviewed by counsel.

Assuming a single entity with two separate plans, they are aggregated to determine TH status, since there is a key employee in both plans. However, that aggregation does not force aggregation under 410(b).

Hence, if the plans satisfy 410(b) on their own, they can be tested separately for ADP/ACP purposes.

They can also be aggregated, if that is desirable, by aggregating them for 410(b) purposes (and reporting them as aggregated on the Form 5500).