Controlled Group or not?

[Guest Lil Anderson]

Here is the deal:

Owner Company #1 Company #2

AA 100% 50%

BB 0% 25%

CC 0% 25%

BB and CC are siblings (if that matters). AA is not related to anyone. Do I have a controlled group? Company #1 already has a retirement plan. Company #2 would like to set up their own retirement plan - is that possible? Is there anything else I should be aware of?

These rules are so complicated. I would appreciate any help!

[Guest Pensions in Paradise]

Based on what's you've indicated, they are not a controlled-group.

You also need to make sure they aren't an affiliated service group.

As long as they're not a CG or ASG, Company #2 can set up its own plan.

Needless to say, you should consult qualified legal counsel to insure you have made the correct determinations.

[Lame Duck]

In order to be a controlled group, the organizations must pass both parts of a 2 part test. This test requires that

a) 5 or fewer persons own at least 80% of both organizations, when considering only individuals who have an ownership interest in both entities, and

b) When comparing identical ownership (the lowest percentage owned by the individual in each entity), it must be more than 50%

In your example

Company 1 Company 2 Identical Ownership

AA 100% 50% 50%

BB 25% 0%

CC 25% 0%

This fails both tests. Since BB and CC do not own any part of Company 1, their interests cannot be used in determining the 80% threshold. In addition, AA owns only 50% of Company 2 so the identical ownership is not more than 50% so it also fails the second part of the test. This assumes that the ownership interests of BB and CC are not required to be attributed to AA.

As an easy rule of thumb, when dealing with a person who owns 100% of one business, in order for there to be a controlled group he must also own at least 80% (either directly or through attribution) of the other organization.

[Guest dbvail]

Company #2 can always set up a plan of its' own. The issue is will both need to be tested as one employer for coverage, benefits etc.

PIP raises the real concern regarding Affiliated Service Groups. These are much more fact dependent than Controlled Groups which are determined by attribution and arithmatic.

If this is an Affiliated Service Group, then the plan document will provide guidance (hopefully).

Do you have any info re what the relationship of these 2 entities is, other than ownership.

And yes, at some point ERISA counsel is worth it.

Good luck.