BRO-SIS CONTROLLED GROUP(3 companies 1 401(k))issues for new company and existing

[Lori H]

Owner 1 has 98% of Company A which is a holding company with no employees. Company A owns 85% of Company B which has less than 50 employees and is a new business to Owner 1/Comp. A. Company B was ready to set up a Safe Harbor 401(k) until it was discovered it was part of a controlled group.

Owner 1 owns 85% of Company C which manages apt. communities. It has 150-200 mostly lower paid employees.

Owner 1 also owns 99% of Company D which provides investment and acctg. services. Company D is a "family office" that has about 20 employees some of which are HCEs. They also have the following 401(k): one year of service, two entry dates, match of 100% up to first 1.5% deferred, 3 year vesting.

Company D wants to exclude Company C from the plan under QSLOB rules and improve the 401(k) it currently provides by possibly adding safe harbor provisions.

Since Company C has at least 50 employees, I believe it may be able to be tested separately under Sec 414®, but i do not feel it can be excluded altogether. I am of the opinion and to make administration as easy as possible and avoid problems(minimum coverage, contribution limits, ADP/ACP), that if they incorporate individual plans, each plans provisions should mirror the other.

Am i missing something? Company B who was ready to set up a Safe Harbor wanted shorter eligibility, quarterly entry, etc for its plan. now, that plan is on hold. Also, and i am not 100% sure, but I do not think Company D's 401(k) has been offered to Company C.

Any opinions?

[Lori H]

UPDATE: Company C has their own 401(k) and when it was acquired by Company D, D had to "downgrade" their plan to match what Company C has. Basically, they are hoping to consider Company C their own business line and broken off and Company D and B have similar plans.