Non-Profit and For Profit

[austin3515]

Non-Profit organization is not part of a controlled group with a For Profit company (I don't think its even possible?).  But there is some very strong connection between the two, probably donation driven, maybe the for-profit handles the accounting work, I don;t really know.

Any reason they both cant participate in the SAME 401(k) plan?

 

[Belgarath]

Austin - as far as I know, a for-profit and a tax exempt entity CAN be a CG. Or I guess it is "Common Control" but has the same effect. See, for example, 1.414(c)-5.

But assuming they are not, I'm not aware of any reason they couldn't be a participating employer as a MEP, if your document allows it.

This is just off the cuff, from memory, so caveat emptor. I'd definitely have to spend some time doing some research before I'd venture a solid opinion on this.

[ESOP Guy]

As far as I know there can be common control.   It can be something very obvious.  I once had as a client a not for profit hospital group that owned 100% of the stock of a for profit insurance company and they owned 100% of the stock of a for profit medical management group.  

This rather old article seems to say outside of my example it might be very hard to get common control.   I guess based on this I would be careful if one of the groups can remove officers and board members of the other pretty much at will.  But even then it sounds like it isn't obvious.

 

https://benefitslink.com/cgi-bin/qa.cgi?n=288&db=qa_who_is_employer

[EBECatty]

This is slightly off the original topic, but I'm not very clear on a similar situation involving a governmental employer and a non-governmental "for-profit" entity. Along the same lines as ESOP Guy's example, say the hospital is a governmental entity that in turn owns 100% of the subsidiary. The subsidiary is not tax-exempt. State law allows the governmental entity to own all or part of a private, non-governmental corporation. 

Say the hospital has a 457(b) and the subsidiary has a 401(k). The governmental plan is exempt from most testing, but does the 401(k) coverage test have to consider all hospital employees?

Relatedly, is there any argument to be made that the hospital can name the subsidiary as a participating employer even though the subsidiary is not a governmental entity (and therefore can't sponsor a governmental plan)?

[Peter Gulia]

Some rules contemplate some (but not all) situations of the kind you mention.

 

26 C.F.R. § 1.410(b)-6(g):

(g)   Employees of certain governmental or tax-exempt entities—

(1)   Plans covered.  For purposes of testing either a section 401(k) plan, or a section 401(m) plan that is provided under the same general arrangement as a section 401(k) plan, an employer may treat as excludable those employees described in paragraphs (g)(2) and (3) of this section.

(2)   Employees of governmental entities.  Employees of governmental entities who are precluded from being eligible employees under a section 401(k) plan by reason of section 401(k)(4)(B)(ii) may be treated as excludable employees if more than 95 percent of the employees of the employer who are not precluded from being eligible employees by reason of section 401(k)(4)(B)(ii) benefit under the plan for the year.

(3)   Employees of tax-exempt entities.  Employees of an organization described in section 403(b)(1)(A)(i) who are eligible to make salary reduction contributions under section 403(b) may be treated as excludable with respect to a section 401(k) plan, or a section 401(m) plan that is provided under the same general arrangement as a section 401(k) plan, if—

(i)    No employee of an organization described in section 403(b)(1)(A)(i) is eligible to participate in such section 401(k) plan or section 401(m) plan; and

(ii)   At least 95 percent of the employees who are neither employees of an organization described in section 403(b)(1)(A)(i) nor employees of a governmental entity who are precluded from being eligible employees under a section 401(k) plan by reason of section 401(k)(4)(B)(ii) are eligible to participate in such section 401(k) plan or section 401(m) plan.

 

26 C.F.R. § 1.410(b)-7(f):

(f)    Section 403(b) plans.  In determining whether a plan satisfies section 410(b), a plan subject to section 403(b)(12)(A)(i) is disregarded.  However, in determining whether a plan subject to section 403(b)(12)(A)(i) satisfied section 410(b), plans that are not subject to section 403(b)(12)(A)(i) may be taken into account.

[Luke Bailey]

5 hours ago, EBECatty said:

Relatedly, is there any argument to be made that the hospital can name the subsidiary as a participating employer even though the subsidiary is not a governmental entity (and therefore can't sponsor a governmental plan)?

EBECatty, under the 414(n) ANPRM (Advanced Notice of Proposed Regulations) (from, I don't know, 2012?), you would not have a governmental plan if you had even one nongovernmental employee in it, so if that becomes the law, you would be self-inflicting 5500's, ERISA fiduciary duties, etc.

[Patricia Neal Jensen]

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