A Real Doozy...

[austin3515]

Facts

Owner owns Company A and Company B.

Company A employs 5 employees. Company B employs those same 5 employees.

Company A sponsors a safe harbor 401k Plan which excludes HCE's from the 3% SHNEC.

Owner has earnined income from ONLY Company A (Company B is an S-Corp and he did not take a w-2)

Plan Year Ended 12/31/2010, and therefore it is too late to make a -11(g) amendment.

Question:

Is there anyway I can do contributions for Owner in Company A's plan? Or is my best course of action to have Owner not benefitting in the Company A's plan. I note that Plan A passes coverage since all employees of the controlled group are benefitting.

But I'm wondering if I have a definition of compensation issue (since half of the employees comp is excluded, and NONE of Owner's comp is) that would require general testing on the SHNEC.

[rcline46]

It is my understanding that service and pay with any member of a CG counts for all members. Since the ees of B are in the A plan, then I would count the B pay. If they were not in the A plan it would not matter. I would look to the regs on CGs and 401(k) plans for inclusion of pay.

[Jim Chad]

I believe that under shared employees you have to count all of the comp and all of the hours. I think Derrin Watson has a section on this in the "who's the Employer" book.

[austin3515]

That would be a fabulous answer... I will check it out thanks!

[Kevin C]

I think you will have to count all of the comp anyway. As shared employees, you do have to count all the hours.

Normally, a plan will only count compensation with the employer(s) who adopted the plan. With a controlled group and shared employees, I think you will have a 414(s) problem if you don't count all of the compensation. It won't be a 414(s) safe harbor definition since you would be excluding some of the compensation with the "employer" in a manner not specified as a 414(s) safe harbor. You will fail the ratio test since only NHCE's have the exclusion. The SH contribution is required to use a 414(s) compliant comp definition, so I don't think you can be SH if Company B comp is excluded.

[austin3515]

I thgink that was my recollection too.

Next question - can I still use 11g to amend to correct? Client is in hurricane irene zone... Plan ye is 12/31/2010.