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Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Multiple Employer Plan Involving Controlled Group

(Posted July 22, 2002)

Question 218: Company A owns 100% of Companies B and C. Company D is owned 50% by Company A and 50% by an individual who has no ownership in Companies A, B and C. Company A has no employees. This is a construction company. Can a plan be established covering the employees of Companies B, C, and D? Would this be considered a controlled group? or some kind of multi-employer or multiple employer plan? All 4 companies are corporations.

Answer: This is a multiple employer plan under IRC 413(c).

A, B, and C are a classic parent-subsidiary controlled group. That is clear. D is not part of that group for any purpose (other than under the special ESOP rules of IRC 409). 50% ownership is not 80% ownership.

Can you establish a plan for B, C, and D? Of course you can, particularly since A has no employees. This would be a multiple employer plan with two employers, Company D on the one hand and the controlled group of B and C on the other. Each company should be a cosponsor of the plan. Coverage and nondiscrimination testing must be run twice, once for D, and once for B-C. The plan would file a single Form 5500 with 2 Schedule T's attached.

Click here for a summary of the multiple employer rules. A complete discussion, with examples, will appear in Chapter 18 of the new third edition of my book, Who's the Employer.

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.