Control Group and ownership

[cpc0506]

One employee X owns 100% of company A. The same employee X owns 90% of company B. The rest of company B is owned by employee Y.

Both companies are covered by Plan run by Company A.

I know I have have a controll group issue, but my question concerns who are HCE? Employee X is clearly a HCE. But is Employee Y also a HCE? He does not own any of Company A but he owns 10% of Company B.

Please advise....

[rcline46]

You bet your life Employee B is an HCE.

[GMK]

Employee B

That's B as in Y, right?

[rcline46]

or Owner of B? in any case, yes.

[Guest Sieve]

Bottom line: each employer (even within a controlled group) is looked at separately to determine ownership HCEs.

"The [controlled group & affiliated service group] rules do not apply for purposes of determining who is a 5-percent owner. Thus . . . a 5-percent owner of a subsidiary corporation that is part of a controlled group . . . is treated as a 5-percent owner . . ." (Treas. Reg. Section 1.414(q)-1T, Q&A-8.)