LLC/Employee issue in PS Plan

[dmb]

We are trying to design a 401k w/ x-tested PS for Employer A, which is an LLC owned 60% by Employer B and 40% by Employer C. B and C are also LLCs. Employer B has three equal partners and Employer C has two equal partners. The 5 respective partners of Employers B and C each recieve K-1 income from their respective employers. None of them receive income directly from Employer A. Can the 5 partners be considered employees of Employer A and be included in it's 401k/PS plan based on their K-1 income from Employers B and C?? Thanks.

[Calavera]

If I am not mistaken (see table below), and all partners are not related, there are no controlled groups between any companies. Therefore you cannot create one plan for all 5 partners.

A B C

P1 20.0% 33.3% 0.0%

P2 20.0% 33.3% 0.0%

P3 20.0% 33.3% 0.0%

P4 20.0% 0.0% 50.0%

P5 20.0% 0.0% 50.0%

I am not familiar with an affiliated service group rules, so I am not sure if this may change anything.

[Bill Presson]

You can create a plan, but it would be a multiple employer plan instead of a single (controlled group) employer. I'm also ignoring any ASG issues as there's not enough info for that.

[rcline46]

You also have to make sure the K-1s issued are EARNED INCOME and not PASSIVE INCOME in the holding company.