Implementation of Separate 401k and Keough?? and integration of existi

[Guest Sppedraza]

I have two related questions regarding 401k's. My Brother-in-law(B-I-L) owns 60% of a company with an existing 401k. He and the other two shareholders are going to sell the Corp to another person so that the new majority shareholder will own 70%, my B-I-L 30% and the other two no ownership effective June 2001. The new majority owner already owns two S-Corp's and a sole proprietorship. He plans to start up 401k's for the employees of the S-Corps and a Keough for himself and his wife in the sole proprietorship. The new majority owner does not want the employees of the three Corps to know about the cross ownership so he does not want the SPD(s) to show one Corp as sponsor.

First, can he setup separate 401k's and/or a separate 401k and a keough?

Second, what happens to my B-I-L's existing 401k if the new owner already has implemented a separate 401k before he takes over?

[rcline46]

401(a)(26) not a problem, can have separate plans if he so desires. Must watch CG/ ASG problems and BRFs with multiple plans.

How can he set up a 'new' 401(k) when he does not yet own the company for the company. If he is buying ownership then he is buying the existing plan.

[Guest Sppedraza]

rcline46

The forthcoming owner wants to setup new 401k's at his current S Corps and a Keough through his sole proprietorship. Can he set up both?

If he can and does, are their integration issues with these newly established 401k's, Keough and the existing 401k currently in place

[Guest dl]

first of all, the s-corp stockholders and sole-proprietor must determine whether they have a controlled group issue under trea. reg. 1.414-c which tests the incorporated & unincorporated business ownership together. if there is no controlled group issue, the owners are home free to set up whatsoever qualified plans.

[Guest Sppedraza]

dl

Three existing companies - 2 S-Corps and 1 Sole proprietorship all owned by one person (he is married).

He will be buying majority ownership of the 4th Co. an S-Corp.

They are all separate autonomous companies in different aspects of delivery business with no common management. They are not a parent-subsidiary relationship.

They are just owned by one person. Does this justify the controlled group relationship

[rcline46]

Unless he tries to use SLOB rules, it is a controlled group. However, 60% ownership in th B-I-L corp does NOT make a controlled group (80% test, Vogel fertilizer). Only the original sole prop and 2 corps.

[Guest Sppedraza]

I was made to believe the threshold was 51%. Can anyone assist with the code section, statute or case name for research.

Thanks for the help...

[Guest dl]

The Supreme Court affirmed in vogel, holding that the companies were not a controlled group and in vogel, the two corporations were not members of a brother-sister group because 1 stockholder did not own ANY stock in 1 corporation. The statute, explained by Justice Brennan, states that a controlled group exists where five or fewer persons own stock possessing at least 80 percent of the total value of each corporation AND that the same indivisible groups of five or fewer persons must represent identical ownership of 50% or more.

irc 1563(a)(2) requires each member of the controlling group had stock in each of the corporations. the attribution rule also capture ownership from spouse, child, parent and grandparents.

[KJohnson]

Section 415 limitations "ratchet down" the ownership requirement to more than 50% in a parent/sub situation but I don't believe that this applies to brother/sister so you should not have a problem with 415.

Also certain additional attribution rules "kick in" over the 50% thresshold (children over 21 etc.), but again it doesn't seem like you have a problem in this case.