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Inclusion of comp for non-participating employer


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Client neglected to mention that the ownership for their company had changed to 50/50 between Owner A and Owner B. Further, Owner B owns another company 100% and the plan's census has "always" included comp from this other company in calculating allocations. I don't think there is a controlled group, because identical ownership isn't greater than 50%; however, I think it wasn't appropriate to include comp from, essentially, an unrelated company (until 2019). I *think* what I need to do is amend their plan to include the other company as a participating employer back to at least 1/1/2019 and/or amend the plan to allow employees to participate through the comp from the other company.

Your thoughts?

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For purposes of 415 the threshold for controlled group (but only for parent-sub controlled groups) is reduced to "more than 50%" from 80%. See IRC sec. 415(h). You can't use compensation from an employer that is not a plan sponsor in determining compliance with 415 limit. Also, the benefit that the individual receives is a larger percentage of the compensation that you can actually use, effectively giving him or her a larger benefit than similarly situated person without proportionate compensation from other entity, so you may have a 401(a)(4) problem. It is likely also inconsistent with your plan document, i.e., was just a naïve interpretation of plan provisions. Consider EPCRS.

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