Ownership Question

[khn]

If I am a 100% shareholder in an S Corp and a 50% shareholder in another S Corp and I offer a 401k plan in the company in which I am 50% shareholder, am I then required to offer it in the S Corp in which I am a 100% owner?

[ETA Consulting LLC]

No. You wouldn't be required to offer it under the S-Corp where you are 100%; even if your ownership in the 50% was at 90%. But, to answer your question, (on the surface), you are not a controlled group; so the existence of 100% owned business is irrelevant. You would want a more detailed analysis (with the concept of excludable shares and attribution being possible).

Good Luck!

[khn]

Thank you much; i learn so much from this board.

[John Feldt ERPA CPC QPA]

Of course, you must first pass the coverage test under Interal Revenue Code Section 410(b). To properly run this test you need to answer a few questions first (here are just a couple of them):

1. Are the two companies a controlled group (who is the other 50% owner and how are they related to you)?

2. Are the two companies an affiliated service group?

If the two companies are considered to be an affiliated service group or a controlled group, then you must consider the employees in both companies when determining whether or not coverage passes.

As ETK indicated, just because you have a controlled group (or an affiliated service group), that does not require both companies to be covered by one retirement plan. If you can still pass coverage with one company excluded, then you are not required to cover that company.

As you can imagine, Congress makes exceptions to the rules and they (or the folks at the Treasury Department) make exceptions to the exceptions, and so forth - which can change everything mentioned above. Also, certain plan documents might require all members of a controlled group or affiliated service group to be covered by a plan if just one employer adopts such plan. So, be careful out there!