Controlled Group - Adoption Agreement

[Guest boetgerinc]

I have 3 companies, all owned 50-50 by the same two people. They want identical plan provisions for all 3 corporations. Can I put all 3 on one prototype document, with each corporation signing a signature page and a board resolution? If I can, then what Tax-ID number do I use when filing the 5500C/R form? Or, do I need 3 documents and 3 5500 filings (realizing that I have a controlled group and the plans need to be aggregated for testing purposes). Thank you.

[Guest ptpnthr]

If all three companies are only owned 50-50 by two people, I don't think you have a controlled group.

I read the facts wrong. There is clearly a controlled group. The plan sponsor will be the ein you use and the other employers will be participating employers. You only file one 5500 and mark it as a controlled group. The 5500 instructions will provide more detail.

[This message has been edited by ptpnthr (edited 10-20-1999).]

[richard]

I think you are right in that no controlled group exists. But be very careful in that determination. Clearly no parent-subsidiary controlled group exists. However, the brother-sister controlled group rules (1.414©-3) are very tricky.

In this case, I think no controlled group exists because the brother-sister threshold is MORE THAN 50% ownership. But, again, be careful.

[Guest boetgerinc]

There is a controlled group - Brother/Sister relationship. 5 or fewer "common owners" satisfy the 80% common ownership test and the 50% identical ownership test.

80% common ownership test: if the combined ownership of the common owners in each business equals or exceeds 80%

50% identical ownership test: if the combined identical ownership of the common owners is more than 50%

There is no question that there is a contriolled group, but does anyone know how to set them up on a prototype / 5500 filing / and trust?

[Dave Baker]

Most prototypes will have language allowing a related employer to sign on as a "participating employer." Most (maybe all) IRS-approved prototypes limit "related employers" to those entities that are part of a 414 group with the sponsoring employer.

You might pose this question to the Corbel folks over on the BenefitsLink Prototypes Q&A column -- http://www.benefitslink.com/qa_columns/pro...pes/index.shtml

[EGB]

Boetgerinc - Is the greater than 50% identical ownership test actually satisfied? It seems to me that the identical ownership is exactly 50% (not greater than 50%) as was suggested by Richard.

[Guest boetgerinc]

Beth Beaube - The 50% identical ownership test is satisfied if the combined IDENTICAL ownership of the common owners is MORE THAN 50%. The same 5 of fewer common owners included in the 80% test must be used in this test. A common owner's "identical ownership" means the LEAST percentage owned by that person in the business being tested.

This example is from the ERISA Outline, published by TRI Pension services:

1) John owns 40% of X and 60% of Y.

Jim owns 50% of X and 30% of Y

John's identical ownership is 40 and Jim's is 30. The combined identical ownership is 70%, satisfying the 50% identical ownership test.

Since I have two identical owners each owning 50%, the identical ownership is 100%.

Think of this another way; If this was not a controlled group, every small employer that is owned 50-50, would set-up a separate corporation for themselves and have a plan only for themselves, and not their employees.

Also, I found some great information in the "Advanced Plan Design Q & A" - Questions 8, 14, 15, 23.

[Ervin Barham]

Boetgerinc - to answer your original question without getting sidetracked on whether you actually have a controlled group:

You would set one of the employers up as the "main sponsor" of the plan and have each one of the controlled groups adopt the plan as an "adopting employer". If they are a controlled group, most prototypes (as Dave Baker mentioned) allow you to do this.

The 5500 would be filed under the main sponsor's EIN and noted that the controlled group exists.

Hope this helps.

[Guest ptpnthr]

Beth Beaube:

You may be reading the facts as I initially misread them, i.e., Person A owning 100% of the first company, Person B owning 100% of the third company, and A & B having 50% ownership of the second. This looks like it would be a controlled group, but because the "greater" than 50% test is not met, it is not. That fact pattern just came up for me about a week ago, and that's why I read it that way. My answer may have suggested the same fact pattern to you, but where both each own 50% of all three, it is a controlled group.

[This message has been edited by ptpnthr (edited 10-21-1999).]

[Guest boetgerinc]

Thank you for all of your replies, they were all very helpful. I also realize that I should be much clearer when asking a question, as any little item that is left out, can really change the direction of the response. Thank you again.