Multiple employer plan - what's with that?

[SMB]

Have found next to nothing with regard to and have no prior experience with "multiple employer plans". I would appreciate any and all comments from my "esteemed and learned peers" regarding the following situation:

"Dad's" company sponsors a 401(k) Plan. Dad's adult "Son" owns his own small business. No overlapping ownership interests, so I am assuming (hoping?!) not a controlled group.

Dad wants to let Son's company become an adopting employer of Dad's company's 401(k) Plan (to save start up document costs and to help defray ongoing admin costs).

Would this be a "multiple employer plan"?

What are the considerations, ramifications, benefits, downsides, etc., of such an arrangement (e.g., recordkeeping, testing, 5500, etc.)?

Thanks to all for your valued input!

[Guest JimD]

Some thoughts to consider:

A multiple employer plan is maintained by more than one employer not in the same controlled group. Since Dad and Son are not part of a controlled group they would have a multiple employer plan if they adopted the same plan.

Usually in multiple employer plan situations there is some common ownership or association between the companies as the basis for establishing a multiple employer plan. It seems like you could have a multiple employer plan in this situation but I've not seen one between employers with no ownership/business/association connection.

The plan document should address the multiple employer situation. Perhaps Dads plan does. If Dads plan is a prototype then Sons adoption would take it out of prototype plan reliance.

Both employers generally have to be meet nondiscrimination requirements separately so from that standpoint they are treated as separate plans and tested separately. For example, coverage, ADP, ACP, top-heavy.

See the Form 5500 instructions regarding how to file a 5500 for a multiple employer plan.

I would question whether there is any saving on document costs or administrative costs. If Dad has not done so he should review the situation with his plans attorney to see if it needs redrafting and filed with the IRS. Administratively there are basically two plans that have to be administered and tested for compliance so Dad should review any additional cost with his administrator. Maybe commingling assets would be beneficial from a fee standpoint.

[Richard Anderson]

This looks like a control group to me, therefore, the two companies are considered a single employer.

Dad is attributed ownership of son's company, and son is attributed ownership of dad's company.

[MJ Hartman]

unless the son is under 21, I don't think there's an attribution issue here...especially if neither dad or son is an employee of each other's company. this dosen't seem to be a controlled group at all. no common ownership, no way to connect the companies by family attribution. it would seem to be a multiple plan situtation.

[lkpittman]

MJ Hartman is correct--no controlled group in this case. We have several clients that maintain multiple employer plans--no controlled group or affiliated service group situation--but usually there is a business reason for "sharing" the plan.

[Alan Simpson]

When doing the coverage, ADP/ACP, and top-heavy testing on a multiple employer plan, is it done on a company by company basis or the plan as a whole. Any site would be appreciated.

[stephen]

I agree with the lkpittman and MJ Hartman sites that this is not a control group based on the information given.

I also agree with JimD: coverage, ADP/ACP and Top heavy testing is done on a company by company basis.

[Guest JimD]

To Alan Simpson: Taking a quick look at Sal Tripoldi"s ERISA Outline Book some cites to look at: Internal Revenue Code 413© for what is treated as a single employer. Regulation 1.413©-2(a)(3) for performing coverage and non-discrimination testing as if each participating employer maintains a separate plan.

[Kirk Maldonado]

My recollection is that you cannot use a Master or Prototype plan for a multiple employer plan.