Meeting a safe harbor using several plans

[Peter Gulia]

A business owner owns 100% of the shares of each of four corporations. She assumes that the four corporations are one employer within the meaning of IRC section 414.

The owner wants three of the four corporations to establish and maintain separate retirement plans. (The fourth corporation employs only nonresident aliens, all of whom have no U.S.-source income.)

To meet nondiscrimination rules, each of the three plans will provide 401(k)/401(m) safe-harbor matching contributions.

Is there anything in the safe-harbor rules that precludes the section 414 employer from using several separate plans to meet the safe harbor (assuming all plans have sufficiently identical provisions, at least on points relevant to the safe harbor)?

[ErisaGeek]

In my opinion I do not believe there should be any problem for having separate plans that are drafted identical even though from a cost perspective it would not make sense but have all companies participate in one plan. If the owner wants to sponsor separate plans then he can do so.

I guess one advantage to having separate plans would be that it would take time to reach the 5500 audit threshold. Other than that not sure why one would want separate identical plans?

Thanks.

[Peter Gulia]

ErisaGeek, thank you for your help.

The owner's reasons for separate plans include: (i) not needing an independent qualified public accountant's audit; (ii) using different recordkeepers for different workforces; (iii) separating and containing some fiduciary liabilities at each corporation; (iv) making it easier to unravel employee benefits on a sale of a business.

Any other BenefitsLink mavens want to explain traps to watch out for in using separate plans while relying on a safe harbor?

[rcline46]

watch for 410(b) groups with each plan since it is considered 1 employer, HCEs are determined over entire group, not by each employer, people contributing in more than one plan.. That is all I got right now.

[Peter Gulia]

Thanks, rcline46.