Sale of plan sponsor; owners are paid through a management company

[Earl]

Company is being sold.  I just found out the owners are actually paid through Management company, Inc. which gets 100% of its income from Operating company, Inc.as a management fee.  Same people own 100% of both corps.

Management company has not adopted the plan.

Operating company takes 100% of the deduction and it is not a 404 problem.

Problem is contributions to employees of non-adopting employer.  (the owners)

Any suggestions on how to fix this?

 

 

[K2]

Maybe this is a controlled group an your document automatically covers all employees of all employers within the controlled group.  I think that's fairly common, so you may not have an issue at all.

[ETA Consulting LLC]

6 hours ago, kcbirm said:

Maybe this is a controlled group an your document automatically covers all employees of all employers within the controlled group.  I think that's fairly common, so you may not have an issue at all.

I think the common trend is for plans to actually require each employer to adopt on to the document as opposed to automatically covering them.  But, you're right in that you should always compare what actually happened to the written terms of the plan when defining problems such as this. 

The fix is to file a VCP and have a retroactive Co-Sponsor Adoption of the Management Company (similar to a non-amender process).  Again, it is only after you ascertain that the Management Company, Inc. was not included in the plan as recommended by kcbirm.

Good Luck!