Controlled Group Question - Solo 401k

[Vlad401k]

Let's say there are 2 companies, both owned by the same Employer. Company A has employees who are NHCEs and the Employer is the 100% owner. Company B is owned 100% by the same Employer and there are no other employees at Company B. Would this be a Controlled Group and would it have to be aggregated for testing purposes? What about the coverage test for Company B? Wouldn't the test show that 100% of HCEs are benefiting and 0% of NHCEs (since the denominator includes the whole NHCE population of the controlled group) and therefore the two plans will have to be aggregated for testing?

 

Thanks.

[Madison71]

I believe this would be a controlled group aggregated for testing purposes.  There is a possible transition period that may be applied on recent acquisitions - last day of the plan year following the transaction. 

[Lou S.]

If I understand this correctly

Employer 1 owns 100% of Company A so you have a parent subsidiary controlled group.

Employer 1 owns 100% of Company 2 so you have a parent subsidiary controlled group.

[Mike Preston]

What a sloppy original question.  Company 1, Company 2, Company B, Employer 1. Sheesh.

[Luke Bailey]

Answers to your questions, Vlad401(k), assuming the sloppiness that Mike points out with lettering and numbering doesn't completely distort meaning:

(a) Yes. A brother-sister controlled group, assuming Employer 1 is an individual. Otherwise, two actual parent-sub groups, which aggregated into a single parent sub group under 414(b).

(b) Yes. You would need to cover 70% of the NHCEs in the group, and you're covering 0%.

If situation results from recent bona fide acquisition, 410(b)(6)(C) transition rule might apply as pointed out by Madison71.