Earned Income From Separate Affiliates in Controlled Group

[ERISAAPPLE]

We have a client with a plan document that defines Earned Income as "net earnings from self-employment with respect to which the Plan is established, for which personal services of the individual are a material income producing factor."  

The plan is sponsored by ABC, LLC.  Owner O owns 100% of ABC.  O also owns 100% of XYZ, LLC.  XYZ has no employees.  O has net earnings from self-employment from XYZ that he would like to use to support his compensation in the plan.  My question is whether XYZ must adopt the plan as a participating employer in order for O to rely on the NESE from XYZ.  My thought is that it couldn't hurt, so why not.  

 

[CuseFan]

Yes, I think XYZ must adopt the ABC plan to include earnings from XYZ, unless the ABC plan's provisions automatically include all employers/employees of the control group.

[C. B. Zeller]

414(b) and (c) state that all organizations which are members of a controlled group are treated as a single employer for the purposes of sections 401, 408(k), 408(p), 410, 411, 415, and 416. So I think that for purposes of annual additions, the compensation from both companies would be included, regardless of whether the second company adopted the plan. For the purposes of the deduction limit, you would only count the compensation in the company that adopted the plan.

[Mike Preston]

For 415 purposes all earnings should be included (check the document).  For other purposes, they may or may not be included (again, check the document).

[ERISAAPPLE]

Thank you everyone.  

[Kevin C]

Prior discussion on the topic, including a cite and differing opinions.