Multiple Employer Plan

[RCK]

We have a bunch of operating units participating in a 401(k) plan and a DB plan. To date, nearly all those units have been 100% owned by us with a few stragglers that are in the 90% range. But in any case, all well over 80% and therefore part of our controlled group.

We are on the verge of an acquisition which would result in an operating unit that we own 75% of. Our preference would be to treat these people like everybody else, and put them in both existing plans. The Plans as they stand have well in excess of 120 participants. The new location would have (say) 50.

So based on my research from searching threads here, calling my auditor, and reading code would give me the following implications:

• We now have multiple employer plans.
  
• We need to amend each plan to include the new location, and make the plan a multiple employer plan.
  
• We should get a new IRS determination letter.
  
• We would file a single 5500 for each plan.
  
• We would include in each filing two Schedule T's--one for the controlled group, and one for the new location.
  
• We would not need a new audit, and there would be no impact on the plan's financials.
  

Questions that I have not figured out yet, and could use some guidance on:

• Do we have to perform separate ADP/ACP tests?
  
• What about 415 and 402(g) limits if someone transfers in or out of this location?
  
• What else am I missing?
  

RCK

[Ron Snyder]

Do you not still fall under the 50% controlled group standard? If not, you are correct with respect to your conclusions.

Answers to your questions:

Do we have to perform separate ADP/ACP tests? Yes

What about 415 and 402(g) limits if someone transfers in or out of this location? I believe that each participant gets only one limit per plan (despite the brother-sister exception) but am not positive.

What else am I missing? You failed to note that the plans will have to be operated as separate plans within a common trust fund. Assets attributable to one employer may not end up in the accounts of another employer's employees under such a plan.

[SoCalActuary]

Your comment about "us" is confusing. Can you describe the ownership more completely?

Is "us" a set of 5 or fewer stockholders with common ownership?

Is "us" a corporation that owns the other organizations as subsidiaries?

Does one person control more than 50% of any or all the units? Does this include any family attribution of ownership?

[RCK]

SoCalActuary: "us" is publicly traded with 50,000+ employees in various subsidiaries. Nearly all the subsidiaries are 100% owned by either the parent or a subsidiary of the parent. No individual ownerships are material.

vebaguru: I don't know that the 50% controlled group standard is or what it means.

RCK

[Ron Snyder]

IRC Section 1563(a)(2): "Brother-sister controlled group.--Two or more corporations if 5 or fewer persons who are individuals, estates, or trusts own (within the meaning of subsection (d)(2)) stock possessing--

(A) at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of the stock of each corporation, and

(B) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation."

[Note: IRC Section 414(b) cross references to 1563(a).]

[GBurns]

Reading the examples of how to calculate the 80% and 50% etc should help you:

http://employerbook.hypermart.net/CGRegs.html#r414