Coverage Test for Controlled Group--one co no longer in business

[BG5150]

Company A wants to sponsor a plan in 2018.  Owned 50-50 by brothers.  Company was in existence since 2016, but only really started conducting business in October 2018.  Brothers, their wives and a child are all getting paid for services.  Company A adopts a 401(k) plan 10/1/18 effective 1/1/18.  21-1 YOS, semi-annual entry.  EEs employed 10/1 have service waived and enter immediately.

The brothers also owned another business, Company B, with 6 other (NHCE) employees.  So, controlled group.  Company B folded 9/30/18.  Company B did not have a retirement plan

Two employees from Company B started working for Co. A in November.

I'm guessing I have to count their service with Co. B.  When do they come into the plan?  January 1?

Do we have a coverage issue?

[Mr Bagwell]

I feel like I chase my tail on these situations....and I have to talk it out with someone too.

There is a control group of companies prior to the plan being adopted 10/1/2018.  I'm assuming the plan was opened 10/1/2018 because of the folding of Company B as of 9/30/2018.  Does that mean there are no employees as of 10/1/2018 for Company B?  That is what I am assuming.

So no one eligible to enter the A plan until 10/1/2018.....

With no employees of Company B being eligible to enter the plan, it appears that there is no coverage issue because we are only concerned with the employees of Company A.

You may have to count service, I'm just not sure by what mechanism.  Would the plan need to specify the Company B.  Does the Plan Document already have language that would cover the Company B employees?  Sorry, I don't know.  Those are the questions that come to my mind.

Don't know if that helped.

[Kevin C]

On ‎12‎/‎3‎/‎2018 at 12:48 PM, BG5150 said:

Company A adopts a 401(k) plan 10/1/18 effective 1/1/18.  21-1 YOS, semi-annual entry. 

Did you intend to say effective 10/1/18 instead of 1/1/18?

As for the Plan A entry date for the former Company B employees, the plan document should have provisions dealing with rehires and employees moving from an excluded class to an included class that will tell you when they enter Plan A based on their service with Company B.

You should also look at 1.401(a)(4)-5(a). From your description, with Plan A being adopted immediately after all the NHCE employees in the controlled group were terminated and the initial participants in Plan A being all HCEs (owners, their spouses and a child), it sounds like the timing of the adoption of Plan A is likely to be discriminatory.