Participating Employer, Controlled Group, Income from all Employers & SHNEC - HELP!

[JGordon]

So I have a client where the owner earns wages/self employment income from all 3 companies (a construction company, an architectural firm, and a real estate firm) in a controlled group.  This is the first year that all 3 companies have adopted and become participating employers in the SHNEC 401(k) Plan.  The construction company was the original plan sponsor and where the owner has always (and did this year) taken his deferrals.  

My question then is whether the owner will end up with a SHNEC in each company since he has income from each company and is a participant per the document and participating employer agreement for each company?  I know for testing purposes he wouldn't have to but to comply with document provisions it certainly seems as if he does.

There are also a handful of overlapping NHCEs in the 3 companies each of whom receives income from each company - I assume they would also each receive a SHNEC for each participating employer.

Am I thinking of this wrong?  I certainly don't think this is the result the owner was anticipating when he and the advisors decided to have the other companies adopt the plan (especially as it relates to the handful of NHCES).

Thank you.

[Lou S.]

They would receive the SHNEC unless excluded (which you say they are not). For 401(a)(17) limit you'll need to aggregate comp from all 3. For example if the owner makes $150,000 from each of the 3 companies, his SHNEC (assuming 3%) would be capped at 3% of $290K for 2021 and 3% of $305K for 2022, not 3% of $150K x 3.

 

[Bill Presson]

21 hours ago, Lou S. said:

They would receive the SHNEC unless excluded (which you say they are not). For 401(a)(17) limit you'll need to aggregate comp from all 3. For example if the owner makes $150,000 from each of the 3 companies, his SHNEC (assuming 3%) would be capped at 3% of $290K for 2021 and 3% of $305K for 2022, not 3% of $150K x 3.

 

Lou is correct. I do think the owner has some flexibility in which company he's recognizing the compensation. For example, he could just assume it's pro rata compared the the actual comp. Or he could use all the the comp from 1, all the comp from 2 and just the remainder needed from 3. As long as it's all reasonable.