Who's the Employer?

Answer: We call that a multiple employer plan, because the two businesses are not under common control and are not an affiliated service group, based on the information you have given me. (There may be an affiliated service group, but I haven't been given any facts which would indicate that there is.)

I have received several questions like this one recently, from folks who do not seem to understand the basic principles of controlled groups and groups of trades or businesses under common control. Many have been in the form of "A bunch of people own 100% of one business and more than half of another. Are the businesses under common control?"

This is symptomatic of an impression among many in the pension industry that ownership of more than half of two businesses is sufficient to crate a controlled group. It isn't. It never has been.

The issues involved are too important to trust to "Gee, I kinda think it oughta be this way." You wouldn't run the ADP test by saying "If the NHCEs have 5%, I'd better limit the HCEs to 5.5%, just to be on the safe side." Why would you run the controlled group test like that?

In this article, I am not going to write a treatise on what constitutes a controlled group. But let me start with the basic rule of brother-sister groups:

Apply the attribution and exclusion rules. Then ignore shareholders who don't own stock in both businesses. Once you've done that, if you can't find a group of 5 or fewer shareholders who own at least 80% of each business, you don't have a controlled group. That isn't the end of the test, but it's a really good beginning. Two examples:

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