Brother Sister Controlled Group

[Guest MEGK]

Company A owns 51% of Company B... Company A has a Safe Harbor and Profit Sharing Plan while Company B has just 1 employee who had deferrals with no company match. The TPA for the plan agrees it is a controlled group with respects to it being a brother sister, but is stating that Company B Employee is not eligible due to the fact Company B never adopted the plan of Company A. I thought if it was deemed a controlled group that it would be eligible regardless of the TPA saying the plan was never adopted?[

[K2retire]

It depends on what the document says. Some automatically cover all members of a controlled group. Others cover only the companies that have adopted the plan.

The automatic part is that the employees of both companies have to be considered in testing -- even if some of them are not plan participants.

[jpod]

1. How could they possibly be a B-S controlled group if the relationship is that A is an owner of B?

2. How can they be a controlled group if A owns only 51% of B? Are there pertinent facts not stated here?

[Guest MEGK]

The common control under Section 414 © where the same five or fewer own greater than 50% interest in each entity.

So, notwithstanding the fact that the group is deemed to be a controlled group, if the plan document of company A state’s new groups must be adopted then the employee has no recourse for the benefits under Company A?

[rcline46]

Facts not in evidence - Controlled group is two parts, and you must satisfy BOTH parts. Part 1 is that the same 5 or fewer own at least 80%. Facts presented do not satisfy test 1 and under the facts presented, there is not a controlled group.

Under the facts presented we do even get to the plan questions.

[Guest Sieve]

MEGK -- the 5 or fewer 50% rule applies for consolidated tax return purposes, but not to retirement plans--for those, it's 5 or fewer 80% (& that's only part of the test--there's more). What you've described is a parent-sub, where one corp owns another--but that's also an 80% rule (not 50%). So, as stated by rcline, you haven't described a controlled gorup under any definition.

Also, most plans now require other members of a controlled group specifically to adopt the plan in order to participate in it--automatic particiaption of controlled group members is a requirement of standardized prototype plans, but hardly anyone uses those documents any more.

[Guest MEGK]

Sieve- thanks for the response and the information. It looks like the plan document for this group is indeed a Non-Proto Type, and given my expertise is not in this field……it appears my friend has no recourse for the benefits if Company B did not adopt as the TPA has stated. I had thought perhaps it had no bearing and all members would need to be covered.