Onwers wanting 2 different plans

[coleboy]

Here's the scenario:

Company 1- Owner A 50%

Owner B 50%

Assistant

Company 2 - Owner A 25%

Owner B 25%

Owner C 25%

Owner D 25%

Owners A & B want to start a separate 401k plan for each company. In company 2 they also want to do a profit sharing contribution to try to max out their contributions. They don't want to do a profit sharing contribution for Company 1 because they don't want to pay the 60 year old assistant a profit sharing contribution.

Is this possible? Can they have 2 plans with different provisions? I seem to think that what they do with one company, they have to do with the other.

Please advise.

[Belgarath]

On the surface, this doesn't appear to be a controlled group, as A & B don't own MORE than 50% of Company 2, assuming no attributed ownership. Are they an affiliated service group?

If they are neither a controlled group nor an affiliated service group, then they should be able to have two separate plans.

These situations usually turn out to be either a CG or an ASG - sometimes with "hidden" attribution such as stock options, or additional ownership due to voting vs. nonvoting stock, or family members, or something, but not necessarily. I always recommend that the client seek the advice of ERISA counsel when determining if a CG/ASG exists.

[mbozek]

Excluding a 60 year old employee from a PS plan to avoid making a contribution is a very real violation of the age discrimination laws imbedded in the rules for qualified plans under the IRC, ERISA and the ADEA. Owners need to consult employment discrimination law counsel to determine if these rules apply.

[coleboy]

It's very possible that this is an ASG since the corporation is an architectural firm and the LLC is a building company. I have not worked with such scenarios that often. So would there only be one plan?

[Belgarath]

If you have a CG/ASG, then all employees of both companies would have to be considered for purposes of coverage, nondiscrimination, etc. - and with only one NHC, obviously they would have to participate in order to pass.

MB - assuming for the moment this is NOT a CG/ASG situation, how is this a problem with nondiscrimination/ADEA etc.? Just a corporation setting up a 401(k) plan that doesn't provide for any PS contributions. Does ADEA have rules which create a related group (for ADEA) even if not a CG/ASG under the IRC? I know very little about ADEA...