Can "unrelated" employers participate in the same 409A plan?

[ERISA-Bubs]

We have two companies that are only a little bit related -- in the 10-20% range.  So they definitely wouldn't be considered a single employer under 409A.  However, when certain employees leave company A to go to company B, they continue to participate in company A's nonqualified plan.  I can't find any reason why this is a problem -- is there anything I might be missing?

[Madison71]

Does it trigger payment upon separation of service when certain employees leave Company A and go to Company B?  

[EBECatty]

I've seen it done before as well. I think of it like a multiple-employer 401(k) where you have a few subsidiaries/affiliates that are related, but not related enough to form a controlled group. It's been a few years, but I recall the issues were mostly operational along the lines of what Madison71 mentions: Are you following the rights rules for separation from service; what types of change in control will trigger consequences; who is paying out the deferred compensation; etc. 

[ERISA-Bubs]

11 hours ago, Madison71 said:

Does it trigger payment upon separation of service when certain employees leave Company A and go to Company B?  

In this case no -- there is a provision in the plan that specifically says leaving A to go to B doesn't constitute a separation.  However, Company B has a separate plan that defines separation from service in reference to 409A, so leaving B to go to A under that plan does constitute a separation.

[ERISA-Bubs]

19 minutes ago, EBECatty said:

I've seen it done before as well. I think of it like a multiple-employer 401(k) where you have a few subsidiaries/affiliates that are related, but not related enough to form a controlled group. It's been a few years, but I recall the issues were mostly operational along the lines of what Madison71 mentions: Are you following the rights rules for separation from service; what types of change in control will trigger consequences; who is paying out the deferred compensation; etc. 

Thank you.  We have a good system for handling the operational issues so far, but I'm not sure how we would handle something like a change in control.  We will have to think ahead on that one.

[austin3515]

Here is a problem for you.  If the one of the Companies goes bankrupt, how do you figure out whose balances go to satisfy the creditors?  Wouldn;t the vulcher like debtors try and attach all of the assets in the plan if they are commingled?

Sounds so so messy.

 

[EBECatty]

FWIW, there's at least one PLR with similar facts ruling on a rabbi trust:

https://www.irs.gov/pub/irs-wd/9901007.pdf

Each individual participating employer had a bookkeeping account for its employees only. If the individual employer became insolvent, only the bookkeeping accounts associated with that individual employer would be subject to the employer's creditors. 

[austin3515]

All well and god until you spend 50,000 in legal fees prove that.  Why would you ever commingle when setting up 2 plans so easy??

[EBECatty]

Fair point, and is what I would recommend if I had my choice. The one situation where I've dealt with non-controlled group employers in the same NQDC plan it was already in place and we were forced to work with it for a variety of reasons. 

[calexbraska]

On 3/9/2018 at 3:01 PM, EBECatty said:

Fair point, and is what I would recommend if I had my choice. The one situation where I've dealt with non-controlled group employers in the same NQDC plan it was already in place and we were forced to work with it for a variety of reasons. 

I just posted a new question, but it's related to this.  If you have two employers that are unrelated (or loosely related) participating in the same plan, I assume transfers between the two employers would still be separations from service, correct?  Otherwise I think it would violate 409A's definition (for more detail, please see my latest new topic in this board).