Multiple Employer Plan

[Zoey]

Ok, here's the situation...

A law firm has 2 owners. 1 owns 99% and the other 1%. The 1% owner of the law firm is now starting his own law firm (100% owner). Obviously, not a controlled group issue. However, he will work for both law firms. His own law firm will have his own clients and not be doing business exclusively for the other law firm (so no affiliated service group as far as I can tell). Suggest a multiple employer plan, right?

The question came up as to who has to make the employer contribution? Can it come from either? A combination of both? Or does it have to be attributable to the participants under each company (i.e., each company pays their own)?

Any help you give me would be greatly appreciated!

THANKS!

[J Simmons]

I think the MEP would spell that out, but it seems when I last looked at the question a couple of years back, each ER must make the contribution for its EEs in order to get the tax deduction. However, make sure the MEP is clear on this issue before it is signed or otherwise adopted.

[Zoey]

Thanks J.

Funny though, the plan document does not have the language specifying that each company is to make their attributable employer contribution. I would think that it would work that way, but I was just wondering if it had to work that way. What if only one company wanted to take the deduction? Could they make the contribution for both companies (as long as it didn't exceed the deductibility limit)?

But what I gather from what you are saying is that each employer must make their own employer contribution, correct?

Thanks again.

[J Simmons]

Thanks J.

Funny though, the plan document does not have the language specifying that each company is to make their attributable employer contribution. I would think that it would work that way, but I was just wondering if it had to work that way. What if only one company wanted to take the deduction? Could they make the contribution for both companies (as long as it didn't exceed the deductibility limit)?

But what I gather from what you are saying is that each employer must make their own employer contribution, correct?

Thanks again.

Each ER's participation will be tested separately. (Well, if two or more but less than all of the participating ERs are a controlled group or affiliated service group, then each such grouping will be tested separately from the ERs outside that grouping.)

This is a 401k plan (assumed per the board you posted in), so I'll further assume each ER has the discretion each year as to how much, if any, it will contribute.

So, no ER should be obligated to make a contribution for the employees of any other participating ER.

If an ER does make a contribution to the MEP for employees of another ER, I do not think the contributing ER gets a tax deduction for so doing. An ER only gets a tax deduction for contributing to the MEP for its own EEs.

Does the MEP document require the same level of benefit accruals by all EEs, so that if one ER say contributes an amount that equals 6% of pay of its EEs that the EEs of other participating ERs must also accrue benefits for that year equal to 6% of pay--but then not specify who would have to make that contribution? If the MEP is so worded, I think it needs to be amended.

[Zoey]

Thanks again J.

Yep, 401k plan. ER contributions are discretionary.

No question there is no obligation for one company to make the contribution for the other company. They were voluntarily wanting to do this.

I guess the issue would be in the deductibility then...never looked at that angle of it. If the first employer were to make the contribution for the second employer, why would they if they can't take the deduction? I was thinking that as long as the employer didn't exceed the 25% of eligible compensation for his own company, that they could contribute to the plan as a whole (i.e., for both companies) if they wanted to.

Yes, the document states that it shall be the same level of benefit for all participants (including the participants of adopting employers), but there is no language even available (boiler plate or otherwise) in the volume submitter document software that we use that states "who" is to make the contribution, or even give us the option of making that choice, so amending won't do us any good if the language is not available.

I guess I'll just tell the client that each is to make their own, just to be on the safe side, huh?

Thanks so much for your response! I sure appreciate it.