Coverable Employees?

[Gilmore]

A builder of residential homes Company A, creates a new LLC for each project under development. Each LLC will have a small number of employees, all of whom are hired, fired, and under the control of Company A. Some of the LLCs are owned 100% by Company A. Others are owned 50% by Company A and 50% with another developer. However, even in the 50% only LLCs, Company A has direct control over the employees. When one project is completed and another started a new LLC is created and the employees of the dissolved LLC will sign a new employment contract with the new LLC, as directed by Company A.

Clearly the 100% owned LLCs are a controlled group, however, Company A would like to cover all of the employees in all the LLCs regardless of the amount of ownership.

Is there a case that the employees in the 50% owned LLCs are common law employees of Company A and would be able to participate in Company A's plan.

Is there any special wording I would need in the plan document under eligible employees?

Thanks for any assistance!

[JAY21]

I'll offer some thoughts. I would have thought it was clear that the employees are common law employees of Company A given the "control test" you mentioned, were it not for the comment about the employees having to sign employment contracts under each new LLC (and maybe that shouldn't change anything). I would wonder what the purposes of having them sign individual employment agreements for each LLC project is, maybe because they want them to be clearly employees of the LLC for all expense/tax/profitability and liability purposes ? but now not so for qualified plan purposes ? Maybe they're unintentionally mudding the waters if they're playing the compensation/benefits game different ways. I guess you could have each new LLC co-adopt the retirement plan (supplemental participation agreements) to cover the employees of the 50% LLCs. However, it probably doesn't resolve everything as you still need to know whose employees they are as now you probably have a multiple employer plan where discrimination testing is applied on a controlled group basis, and not evey LLC is presumably in the same controlled group. I guess I'm coming back full circle and thinking that establishing that Company A is the employer is the natural way to go, but if they're playing the game otherwise for other non-retirement purposes, it seems at cross purposes. For example, who gets the tax deduction for the retirement contribution when the LLC paid the compensation for the employees, doesn't the IRS generally look at retirement contributions as deferred compenstion ? (presumably of the entity paying the wages). Yeah, I know, you asked for help, not more questions.....

[Gilmore]

Hey thanks for the thoughts. Actually more information came to light after my initial posting. It seems that Company A had already sought the advice of counsel with regard to the status of the employees of the LLCs for other purposes and was advised that the employees are employees of the LLCs. As you say, they cannot be treated differently for different purposes, so Company A has decided on a multiple employer plan.

Thanks again.