Shared Employees

[Guest Tara Curran]

We have a client (an S Corporation) who has adopted a 401(k) plan and is considering sharing employees with a related partnership, of which the S Corp owns 20% and the remainder is owned by unrelated individuals. These two companies would not be considered a controlled group or an affiliated service group. The partnership does not have a 401(k) plan. Is the partnership required to adopt a 401(k) plan to cover these individuals if they pay them directly?

[Moe Howard]

No. Since the partnership is not a member of either a controlled group or affiliated service group , in which another group member has a 401(k) plan.

[Guest Tara Curran]

If the partnership is not required to adopt a 401(k) plan, then the employees who work for both companies will not receive full benefit of the plan, correct? In other words, only the portion of their salary paid by the S Corp will be considered for salary reductions and employer contributions.

[Moe Howard]

What do you mean by "the portion of their salary paid by the S-Corp" ?

Your initial question says that the two entities will not constitute an affiliated service group ... which means that the degree to which they will share employees is not sufficient to force the status of a affiliated service group.

Each entity will have to give it's employees a W-2.

Since only the S-Corp has a plan and since the two employers do not constitute an affilited service group ... then of course - only the the employees' S-Corp salary will be eligible for the S-Corp's plan purposes.