Do we have a Multiple Employer plan?

[Guest willoughby]

My company may be acquiring a 60% ownership in another company in a stock deal. If we let the target's employees into our 401(k) plan, will we create a multiple employer plan? Is there a bright line rule for determining when a multiple employer plan exists?

[rcline46]

Multiple empoyer plan usually refers to union plans. Multi-employer other is what you will have If you are not in a controlled group / affiliated service group with the other company. Parent sub controlled group requires 80% or more ownership.

[jaemmons]

Multiple ER plans can also be established by companies that have a business relationship or common ownership, but do not satisfy the related employer definition of IRC 414(b)or ©, as is the case here.

The guidelines for multiple employer plans are set forth in Code Section 413©. In addition, you cannot sponsor a multiple er plan under a prototype document, so you may have to restate onto a custom drafted plan doc if you are currently using a prototype.

[Guest RBeck]

I disagree with rcline46 - MULTI-EMPLOYER is usually union. MULTIPLE EMPLOYER is usually non-union, although union employees can participate in a multiple employer plan.

[Guest willoughby]

Thanks for the responses. My bottom line question is whether a multiple employer pension plan may exist when a company acquires less than an 80% interest in another company. I had been informed that there was some question whether such a plan could exist if the ownership interest was between 50-80%, but couldn't find any authority to support the statement. Any thoughts would be appreciated.

[MWeddell]

For most purposes, 80% common ownership is required. Do the owners of the other 40% of the new company own 0% of your company? If not, then you still have two separate controlled groups. If they are in one plan, you have a multiple employer plan.

An exception is that for applying the 415 limits, only > 50% common ownership is required for parent-subsidiary controlled groups, which includes your situation. See Code Section 415(h).

[Alf]

You might be getting multiple employer pension plans confused with MEWAs. As I understand the rules for MEWAs (and I am by no means an expert), 50% or greater common control is assumed to be enough to avoid the MEWA label, but the code rules for pension plans require 80% common control to avoid multiple employer plan status.

Any disagreements with these general statements?

[Guest RBeck]

You might be creating an affiliated service group, depending on what industry the potential acquired company is in. In that case, the rules, as I understand them, mean that the ASG is treated likea controlled group, not a multiple employer.