Participating employer/deduction issues

[Belgarath]

Most documents I've seen (or at least those where I've happened to look at this wording) provide something to the effect that the "employer" includes the sponsoring employer, any "associated employer" - e.g. member of a CG/ASG - and any participating employer. And all the eligibility, participation, required contributions, etc., automatically take into account the employees of any associated employer.

So, in a situation where the employer neglects to inform you that there's a CG, until AFTER the end of the year, and there's now a required contribution on behalf of the employees of the employer who has not, as yet, signed on as participating employer, is the cost deductible? And if so, is it deductible to the sponsoring employer, or the "associated employer" who has not yet signed on as a participating employer? If not deductible, is it subject to the penalty tax, and can it then be deducted once the associated employer actually signs on?

I suspect that in the real world, the associated employer kicks in the requisite amount and deducts it. I don't know if the IRS would disallow this on audit anyway, as it is arguabley "required?"

Just looking for thoughts or discussion, or any actual experiences you might have had with this or similar situations. Thanks!

[mwyatt]

Not sure if you have springing costs or not. My understanding (at least in the Relius document world) is that the other CG employers aren't automatically in the Plan until they sign on as a participating employer. So don't think your valuation automatically springs to include this new entity until they sign the PA. That being said, you may have issues with coverage with this new group included for 401(a)(4) testing not being covered by the Plan.

[DMcGovern]

So, in a situation where the employer neglects to inform you that there's a CG, until AFTER the end of the year,

Don't you just LOVE how creative clients can get?

Was there an acquisition or merger during the year? Just wondering if the transition rules under 410(b)(6)© would be applicable.

[Belgarath]

Heck no. That would have been too easy!