Contolled group consequences

[Guest djsimonetti]

A and B are members of a controlled group and, as such, maintain the same profit sharing plan. Each company's employee mix(HCEs v. NHCEs) varies from year - to- year. In order to ENSURE that the plan passes 410(b)for a year, both A and B must contribute to the plan for their respective employees so that enough NHCEs "benefit" for that year. However, I think that A and B must contribute the SAME PERCENTAGE OF PAY in order to ENSURE that the plan passes 401(a)(4) re nondiscriminatory contributions. Also, one company's contribution is deductible only to the extent it is allocated to the accounts of its employees. Finally, if A and B wanted separate plans, I think the provisions (eligiblity, allocation formula, vesting, loans, etc.) must be identical to ensure passing 410(B). Am I correct?

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[Guest David Dye]

Regarding a controlled group PSP with participants from company A and from company B --

The controlled group AB is treated as a single entity for purposes of allocating contributions, regardless of the number of HCE's or NHCE's represented from A or B. If the plan is not integrated, and, for example, a 10% contribution is to be allocated to the eligible participants, then all eligible participants from both A and B should receive an allocation of 10% of comp. You also should consider AB as a single entity for nondiscrimination testing.

It doesn't matter, for purposes of the allocation, how much was contributed by company A and how much was contributed by company B. Ideally, if company A's eligible compensation represents, say, 65% of the total eligible compensation, then company A should contribute 65% of the total plan contribution. However, it does not have to be this way. Company A can contribute 100% of the contribution for AB, with company B contributing 0% (or vice versa).

As for deductibility of the contribution, I am not aware of any limit on the deduction as to the contribution being allocated only for participant's of each indiviual company. As long as the combined deduction taken by company A and by company B does not exceed the Sect. 404 limit of 15% of eligible compensation for all participants in AB, then there is no problem.

As for creating separate plans for participants in company A and participants in company B--

Yes, each plan should have the same provisions for eligibility, vesting, contribution allocation, distributions, etc. To do otherwise would be discriminatory.

[Guest djsimonetti]

Thanks for the feedback. My concern with deductibility does not involve the 404 or 415 limits on deductible contributions. Rather, it concerns whether contributions made by A can be deducted at all if they are allocated to participants who are not employed by A.

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