Brother-Sister Controlled Group

[Guest Enda80]

Hypothetical situation: Is is still a brother-sister controlled group if the same people own both companies, with substantially similar ownership shares in both cases, but there are no common employees in the two companies?

[John Feldt ERPA CPC QPA]

Yes, as long as both the 80% common and 50% identical tests for ownership are met (using 5 or fewer owners).

[bzorc]

Let's make this a fun hypothetical. Assume both companies have employees (non common to both), and both companies maintain a 401(k) Plan. One company matches, the other doesn't. Wouldn't the controlled group rules require the nonmatching company to match, or vice-versa? That is, don't the benefits offered by both plans have to be identical? I have this exact situation going on now, where a brother-sister controlled group both set up 401(k) plans with non-similar features. This was brought to our attention just yesterday!

[Jim Chad]

NO, I do not think they would both have to offer the same match. I think they just have to pass coverage.

Think of this as if it were one company with 2 locations or 2 divisions. Depending on the mix of HCEs and NHCEs, it might pass coverage. And then, of course, you would have to do the ACP test. I think the ACP test would include only the participants in the division receiving a match.