Subscribe (Free) to
Daily or Weekly Newsletters
Post a Job

Featured Jobs

Plan Administrator

Aimpoint Pension
(Remote / Pompano Beach FL)

Aimpoint Pension logo

DC Administrator

United Benefit Pensions Inc.
(Remote / Melville NY)

United Benefit Pensions Inc. logo

Benefits Supervisor

NFL Player Benefit Office
(Baltimore MD)

NFL Player Benefit Office logo

DC Plan Administrator

Retirement, LLC
(Remote / Oklahoma City OK)

Retirement, LLC logo

Junior Implementation Specialist - 401(k) Administration

Ubiquity Retirement + Savings
(Remote / San Francisco CA)

Ubiquity Retirement + Savings logo

Site Manager / Senior Administrator

Nicholas Pension Consultants
(Remote / AZ / ID / NM / NV / UT)

Nicholas Pension Consultants logo

Retirement Plan Administrator

Hessel & Associates, LLC
(Remote / IL)

Hessel & Associates, LLC logo

Sr. Retirement Plan Administrator

Tycor Benefit Administrators, Inc.
(Berwyn PA)

Tycor Benefit Administrators, Inc. logo

Compliance Analyst - 401(k) Administration

Ubiquity Retirement + Savings
(Remote / San Francisco CA)

Ubiquity Retirement + Savings logo

Defined Benefit Plan Consultant

Sentinel Benefits & Financial Group
(Remote / Wakefield MA / Melville NY / Bingham Farms MI)

Sentinel Benefits & Financial Group logo

Distribution \ Loan Clerk

Retirement, LLC
(Remote / Oklahoma City OK)

Retirement, LLC logo

Manager - Defined Contribution Plans

M2B Retirement Consulting LLC
(Remote / Wexford PA)

M2B Retirement Consulting LLC logo

Pension Administrator

(Remote / Phoenix AZ)

MGKS logo

Retirement Plan Administrator

Nicholas Pension Consultants
(Remote / Rancho Cordova CA / Corona CA)

Nicholas Pension Consultants logo

Senior Plan Consultant

Sentinel Benefits & Financial Group
(Remote / Wakefield MA)

Sentinel Benefits & Financial Group logo

View More Employee Benefits Jobs

Free Newsletters

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

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

Over Half Isn't At Least 80%

(Posted May 13, 2002)

Question 180: A partnership in one state (say, Maine) also has an office (same type of business) in another state (say, Alaska) that is an LLC electing to be taxed as a partnership. The 2 partners of the Maine business own 100% of that entity, and they are 2 of the 4 partners of the Alaska office, owning approximately 53% of that entity (the LLC). All of the employees of both offices are covered by a 401(k) plan maintained by the Maine office. Are these businesses under common control?

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:

  • John owns 79% of corporations A, B, C, and D. Able owns the rest of A, Baker the rest of B, Charlie the rest of C, and David the rest of D. Assume nothing triggers attribution or exclusion rules. None of these businesses is in a controlled group with any of the others. John is the only overlapping shareholder, and he doesn't own at least 80% of any of them.

  • 7 women each own 14.2857% of each of two corporations. Ownership of the corporations is identical. However, no group of five shareholders owns more than 71.5% of either corporation. Hence, they are not a controlled group.
The controlled group rules are not difficult, but it does take some investment of time to learn them. If you aren't willing to invest the time, count on the fact that you will make mistakes-- mistakes that can prove very costly.

And where do you go to learn them? I thought you'd never ask! Try Chapters 6 through 11 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.

Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2022, Inc.