Help. Confused minds want to know: Is this a controlled group?

[Guest jcarlos]

We believe that we are overthinking this:

5 individuals, Including father and his 2 adult children (this family owns 81%), and 2 unrelated individuals (who, together, own 19%) own 100% of corp. X.

Corp X owns 59% of Corp. Y.

2 individuals unrelated or connected to Corp. X or any of its owners own the remaining 41% in Corp. Y

Is there a controlled group existing here?

Would it make any difference if all the owners of Corp X were parent and children?

Thank you. We believe there is a parent/subsidiary relationship here, but the facts presented to us have changed so many times over the past few days, our thinking is getting muddled and we are being to quarrel amongst ourselves.

[E as in ERISA]

I don't think that it's a controlled group.

Are they C Corps? Can you confirm that they aren't filing a consolidated return or sharing tax attributes from a corporate filing standpoint? That should provide some assurance -- since the plan rules piggyback off the corporate rules.

Another way to think about it is to ask whether the same people have so much control over BOTH companies (80% similarity) that the IRS will generally require them to make the same benefit decisions for both. In this case, the unrelated 41% owners of Y should have enough power to raise a fuss about the benefit programs for Y and make it hard for X to to implement the exact same benefit programs. So the IRS won't require them to test the benefits together.

[four01kman]

I believe Code Section 1562(a)(2) or (3) answers the question. No, I don't think there is a controlled group here.

[Alf]

No CG btw X & Y.

[Guest Pensions in Paradise]

Don't forget to make sure they're not an affiliated service group.

[KJohnson]

Except--isn't 80% reduced to 50% in a parent/sub relationship solely for the purposes of 415?

[Guest jcarlos]

Thanks to all. The reason this became an issue is because we don't think that these companies can both adopt the same prototype plan.

Doesn't look like it.

[austin3515]

That's a different question, and yes they can (depending on the prototype). Most will allow this because your situation is not uncommon. It's called a multiple employer plan because two controlled groups (i.e., two employers) are in the same plan. Although there's one plan, most of the qualification requirements, such as coverage and nondiscrimination, are performed separately for both employers.

[Guest philc]

Didn't think Rev. Proc. 2000-20 permitted the use of a Prototype for multiple employer plans?

[austin3515]

I've seen it before...

[Archimage]

You may have seen it and you can literally draft one but it will become an individually designed plan and you would need to submit for a determination letter.

From Rev. Proc 2000-20:

SECTION 8. OPINION LETTERS - SCOPE

.01 General Limits on Opinion Letters--Opinion letters will be issued only to sponsors or mass submitters and do not constitute rulings or determinations as to either the qualification of the plans as adopted by particular employers, or, in the case of prototype plans, the exempt status of related trusts or custodial accounts.

.03 Areas Not Covered by Opinion Letters--Opinion letters will not be issued for:

1 Multiemployer plans or multiple employer plans, within the meaning of §413(b) and §413© respectively;

[R. Butler]

I'm sure the actual prototype document actually has language indicating that if unrelated employers adopt it will be considered individually designed. Every prototype I have seen has that language in the underlying document.