closely held organization

[Guest MMorgan]

We have three sisters who each own 33.3% of company a & company b. They do not work for either company, but their husbands work for company a. They want to set up a new plan for a but not b. Company a has 13 employees, company b has 50. I am assuming they have to offer a 401(k) to company b. Right? Any plan design ideas here?

Thanks for any input.

[Dawn Hafner]

Only if these companies are considered a controlled group or affiliated service group do you have any coverage issues to deal with. Look at the regulations under Code Section 414© for the definition of a brother-sister controlled group. Ownership is not attributed between siblings, so on the surface your facts do not seem to indicate a controlled group as the ownership in common is only 33%. You will need to review the attribution rules under Code Section 1563(e) though.