Controlled group and brain cramp

[Belgarath]

My favorite subject...

Suppose you have corporation A, owned 100% by Mr. X. It has a profit sharing plan, on a calendar year basis. In early December, Mr. X and Mrs. X purchase corporation B. They are 50/50 owners, and with attribution it is a controlled group.

Now, under 410(B)(6)©, it seems as though corporation A's plan is all set until 1/1/2006. If they WANTED to include corp B's folks, they could amend the plan to credit prior service with corp B. They don't want to do this. So far, so good, I think.

What they appear to want to do is establish a plan for corp B, for 2004 and 2005, that ignores corp A. I don't see how they can do this. If they had an existing plan, they would receive the same treatment as corp A's plan under 410(B)(6)©, but since one of the requirements for the "free pass" is that the plan has to have been in existence at the time of the transaction, this requirement isn't met. Since there was no plan for corp B, then if they attempt to establish a plan, they will have to consider all of Corp A's people.

I can't shake the feeling that I'm missing some obvious point or solution - if someone could point it out, I'd be be most grateful. Thanks, and Happy Holidays!

[jquazza]

What makes B fail coverage? After all, if they exclude A employees, there is a good chance they would pass coverage on their own, no?

[Belgarath]

No, the employee populations are such that Corp B's plan would fail coverage testing. Probably should have mentioned that in the original post! So do you agree that there is no way for B to establish a plan without considering A's employees?

Thanks.