Control Group Determination

[pixmax]

I have a Plan that is 90% owned by a LLC and 10% owned by another company. This would tell me it's a control group. However the client indicates that the company who owns 90% are investors of about 20 people who receive K1's and do not have any ownership in the 10% company? Can I think of this as a holding company? I asked that he send over the % for each of the 20 people. 3 of these 20 are employees of the Plan. Any thoughts or other suggestions.

[QDROphile]

Try again. A plan is not owned.

[pixmax]

Try again. A plan is not owned.

[pixmax]

A company is owned 90% that has a plan.

[Guest Sieve]

Then the plan sponsor and its parent are members of a parent-subsidary controlled group.

[pixmax]

The Company that owns 90% does not want to adopt the Plan and they do not have a plan of their own. Do I still need to add them in for testing?

[Guest Sieve]

Unless SLOB status applies, then the parent must be included in sub's Plan testing. Or, putdifferently, parent & sub are treated as one employer, and all employees of the parent & the sub are treated as if employed by that one employer.

Whether or not the sub's 10% owner is included in the testing is another matter, and it sounds like your client is trying to establish that parent and the other (10%) owner of sub are not members of an affiliated service group. But, nevertheless, that determination (i.e., whether the 10% owner must be included in the testing as an ASG member) has no impact on the controlled group status of the 90% owner (parent) and the plan sponsor (sub).

[austin3515]

As a point of clarification, the LLC actually has its own employees, correct? You had referred to it as a holding company at one point which suggest it does not have any operations.

[pixmax]

It's an LLC with 20 investors that all receive K1's, there are no employees. Could this be considered a holding company? Either way would it matter?

[austin3515]

The point is, whether or not there is a controlled group is only relevant in determining whether or not there are two grouips of employees that need to be tested together. So you said the LLC doesn't want to adopt the plan, but it has no employees so no need for a plan in the first place. Simply owning a company as an investor does not make you an employee that needs to be included in testing.

[pixmax]

If they are receiving K1's doesn't that make them an employee?

[QDROphile]

Not if they are not providing services.

[pixmax]

I appreciate all of your help. I just want to make sure that I am making the correct clarification of an employee before I tell them that I don't have to include them in testing. Are they considered providing services if they are Key such as officers that are on the Advisory Board?

[K2retire]

The issue is do they perform any work for the company.

[austin3515]

If you're company sponsoring the plan is a corp, then the only people you need to be concerned with are those that are getting w-2 wages from the company (assumign your doing everything the way you are supposed to).

An investor who is an employee of the corp should obviously being getting compensation from the corp anyway. Just getting a K-1 fromt he parent company doiesn't make you an emlpuee. In fact, there probably isn't any self employment income anyway - Box 14A - is that right?