Another Control Group Question

[coleboy]

Possible new client wants to set up a 401k before year-end. The goal is to maximize the 3 equal owners. That's fine.

I just found out that the same 3 owners own another company equally as well. They don't want to set up a plan for this company at this time.

Shouldn't the employees of the second company be eligible to participate in the plan of the first?

They will have to be included in the coverage testing, correct?

I have very little experience working with control groups so I'm uncertain how to proceed.

Thank for for any insight, anyone can give me.

[Lou S.]

The employees of the brother-sister controlled group will have to be included as non-benefiting employees in discrimination tests. If the plan passes testing with them as non-benefiting employees they you are OK.

In this case I have a hunch it will not pass testing. I could be wrong as I have seen no data on either of these companies but my guess is the company they want to cover has the owners and few if any other employees and the company they don't want to cover has a fair amount of rank and file non-highly compensated employees.

But perhaps that's just the cynic in me coming out.

[QDROphile]

From Devil's Dictionary by Ambrose Bierce: "Cynic, n. A blackguard whose faulty vision sees things as they are, not as they ought to be. *** "

[Earl]

Just think, "this is one company"

[Tom Poje]

as Earl said, you have 'one company'.

so all employees are included for coverage.

If the employees of the other company are excluded from the plan, then they would not be on the 401(k) test for ADP testing, but they do count as big fat non benefiting 0s on conerage.

since it is November already I express a bit of concern over any ADP test if the owners are going to maximize out. the best you can do is 5% for the owners with the 'free' prior year testing of 3% for the NHCEs that the regs permit. I can't imagine the NHCEs avg being more than at this late date.