401 K control group issue

[Guest muzz]

I'm working with a client that wants to implement a 401k for a management company and its associated partners. The management company sits on top of 4 separate operating entities which will not participate int he 401k. The partners in the management company own varying interests in the operating entities. An actuary/TPA has reviewed and indicated that their is not a control group issue provided that the % ownership structure doesn't change.

What are the ramifications, if the % ownership were to change at some point in the future? Does anyone have an article or refernce material that I can use to explain this to the client in very basic terms?

[Tom Poje]

This could depend on your plan document. If the situation becomes a controlled group make sure the document doesn't 'suck the other members into the plan. I believe that would happen if the plan is a standardized document.

Regardless, assuming a document that doesn't bring the other companies in....

As for testing coverage if a controlled group arises and rears its ugly head, the employees of the 'other' companies not participating would be treated as includable and not benefiting for purposes of coverage. Unless you have some HCEs in this group the plan would probably fail coverage.

ADP test would be unaffected