Can a retirement plan by adopted by only one of two corporations owned

[Guest Pat Metallic]

If an individual owns 2 corporations, can a qualified retirement plan be adopted for only one of the corporations?

[MR]

as long as the plan passes coverage taking into account the employees of both, it should be ok for only one to adopt. they have to pass coverage every year, so i'd be careful suggesting this as a permanent solution.

[rcline46]

The answer is a definite MAYBE! Prototype plans typically include automatically any members of the controlled group, so adoption by one corp includes the other. IRS requires this but there is a legal question as to how one corp can bind another corp!

Volume Submitter and individually designed plans do not usually automatically include other members of controlled group, but if the plan would then fail 410 or 401, is it a qualified plan?

[JohnCheek]

Also, if the two corps fit the definition of qualified separate lines of business, they could be treated as unrelated for purpose of the coverage tests.

[John A]

rcline46, I thought it was only Standardized Prototype plans that automatically cover all members of a controlled group, and Nonstandardized Prototype plans could exclude some members of a controlled group. Is that correct?

[JohnCheek]

As I understand it, the Plan does not have to cover all members of the group, but a controlled group is treated as a single employer for purposes of the discrimination testing, unless portions can be carved out as QSLOBs

[rcline46]

John A - Standardized do include, Non-Standardized plans it depends on the the particular document - what was put in by the doc sponsor. As always - RTFD - read the fine document.

[Moe Howard]

pat metallic: Yes ... only one company (of a controlled group) can adopt a plan, but only if the plan is a non-standarized plan. However, keep in mind that if that non-standarized plan fails the 410(B) coverage test (when the coverage test is performed only on the one adopting employer) then the plan will not be qualifed. If such a situation arises, then the only way to force the plan to pass the coverage test (and thus maintain plan qualification) is to allow some of the employees of the second corporation into the plan.