401(k) plans - set up question

[Teatree]

I am not sure how 401(k) plans works, so hoping for any guidance. Apologies if question is basic.

Several companies are in the same brother sister controlled group. None has ever had a 401(k) plan. One of the companies wants to set up a 401(k) plan that would cover just its employees. Can that company do that or must the plan allow participation by employees of other brother-sister companies?  

Also, assuming that the company can set up a 401(k) plan to cover just its employees, would discrimination testing be done on just that company's employees or must it include employees from all the other brother-sister companies? 

Thanks. 

[Bill Presson]

It's a maybe. Depends on the exact details of the situation and that likely can't be outlined here. Can it be done? Yes. But it all depends on the plan design.

[Teatree]

Thanks Bill. Any way you can expand on what type of plan design elements would permit this or what some of the considerations are? I am a newbie.

From what I have read so far, it seems that the company would be able to set up the 401k plan just for its employees, but that it would have to count all employees in brother sister controlled group when discrimination testing.

However, if the company set up a safe harbor 401k plan just for its employees, controlled group considerations and discrimination testing would be non-issues.

Perhaps my understanding is off base?

[Larry Starr]

2 hours ago, Teatree said:

Thanks Bill. Any way you can expand on what type of plan design elements would permit this or what some of the considerations are? I am a newbie.

From what I have read so far, it seems that the company would be able to set up the 401k plan just for its employees, but that it would have to count all employees in brother sister controlled group when discrimination testing.

However, if the company set up a safe harbor 401k plan just for its employees, controlled group considerations and discrimination testing would be non-issues.

Perhaps my understanding is off base?

Teatree, you really are asking fundamental questions that does show you are a newbie and the issues surrounding your fact pattern are substantive and complicated.  Yes, your understanding (the penultimate sentence above) is significantly off base. While a safe harbor 401(k) plan can be established for just one member of a controlled group, you still will have to deal with coverage issues and discrimination testing if you have HCEs in your plan and you don't have the employees of the other members of the controlled group covered. 

What is your involvement with this situation? What is your position/job/background? This belongs with a competent service provider who can guide the clients; no offense is intended, but it clearly sounds like providing competent consulting is not yet something you can do and  you can't really learn all the ins and outs on this bulletin board system.  The issue is significantly technical and to keep the client out of trouble, the client needs guidance from well educated providers. This is not something that a "newbie" should be attempting to figure out just by reading some stuff. What is your background?  Have you taken any courses (such as ASPPA education courses)?  Do you have any designations?  etc. etc.  

Not a knock on your desire to learn (that's good), but a great concern for your client that you probably don't have the depth of knowledge necessary to advise this client (at least, not at this point in your career) and you are not going to get what you need from posting here.  Of course, we really don't know much about you other than your self described newbie status, but the questions asked are enough to make it clear you have much to learn, and you can't learn on real live clients. 

All, just, FWIW. 

[Teatree]

I am not in the advisory or consulting business. I am actually a potential client just doing some legwork research to learn as much as I can about 401(k) issues and pick some brains, but thanks for your gracious advice.  

[Larry Starr]

16 hours ago, Teatree said:

I am not in the advisory or consulting business. I am actually a potential client just doing some legwork research to learn as much as I can about 401(k) issues and pick some brains, but thanks for your gracious advice.  

Aha! Brain surgery, self taught!  You need to find a competent professional who can guide you through the complexities and answer your questions; that is the OPPOSITE definition of "the internet".  This is not for self teaching, IMVHO.  Good luck.