Subscribe Now!
Free Daily News, Jobs, Webcasts, Discussions
Post and Distribute
Your Jobs
ARPA Webcasts

Featured Jobs

DC Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

DB Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

DB/DC Administrator

Primark Benefits
(Telecommute / Burlingame CA)

Primark Benefits logo

401(k) Consultant

TPS Group
(Telecommute / North Haven CT)

TPS Group logo

Employee Benefits/Health and Welfare Attorney

Miller Johnson
(Telecommute / Grand Rapids MI / Kalamazoo MI / Detroit MI)

Miller Johnson logo

Retirement Plan Administrator

RSW & Associates
(CT / NJ / NY)

RSW & Associates logo

Product Support Consultant part of Wolters Kluwer Legal & Regulatory
(Telecommute) part of Wolters Kluwer Legal & Regulatory logo

Retirement Plan Consultant / Relationship Manager

Associated Pension Consultants
(Chico CA / Sacramento CA)

Associated Pension Consultants logo

Plan Document Specialist

Jocelyn Pension Consulting
(Telecommute / Boulder CO / San Rafael CA)

Jocelyn Pension Consulting logo

DC or DB Administrator

Farmer & Betts, Inc.
(Telecommute / Tacoma WA / Tualatin OR / Littleton CO)

Farmer & Betts, Inc. logo

Director of Finance

NYCDC of Carpenters Benefit Funds
(New York NY)

Retirement Plan Administrator (Account Manager)

Kushner & Company
(Telecommute / Portage MI)

Kushner & Company logo

Retirement Plan Administrator

Bates & Company
(Telecommute / Winter Park FL)

Bates & Company logo

401(k) Implementation Manager

Human Interest
(Telecommute / San Francisco CA)

Human Interest logo

Retirement Plan Administrator

My Benefits, LLC
(Telecommute / Daphne AL / Atlantic Beach FL)

My Benefits, LLC logo

Director of 401(k) Implementation, Core

Human Interest
(Telecommute / Mill Valley CA)

Human Interest logo

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

Common Control and 401(a)(26)

(Posted May 28, 2002)

Question 187: Jane and her husband John jointly own 100% of Corporation J. Jane also owns 100% of the capital and 55% of the profits of JK Partnership. There are no common law employees in the partnership, and Jane is the only employee in Corporation J. Karl, the 45% income partner in JK, set up a defined benefit plan covering his schedule C income and his K-1 income from JK. Jane now wants to set up a defined benefit plan for herself, for her salary from Corporation J. Is there a problem in doing so?

Answer: There are really several questions that need to be answered here.

Can Karl set up a plan for JK? No. Karl is not the employer with regard to JK. The partnership itself is the employer according to Code 401(c)(4). Thus, if there is to be a plan covering the partnership, it is the partnership that must sponsor the plan. Moreover, based on what information you have given me, JK is not under common control with Karl's Schedule C business, so we cannot count the compensation through the back door, as it were. I strongly suggest Karl have a responsible attorney review his plan situation.

Are Corporation J and JK Partnership under common control? Yes. Just as corporation ownership is based on the greater of ownership of voting stock or ownership of value of stock, so partnership ownership is based on the greater of ownership of capital or profits. (More on this point is at Q&A 12:3 of my book, Who's the Employer.) So Jane owns 100% of JK and, thanks to attribution from John, she also owns 100% of Corporation J. Thus, those two enterprises are under common control.

Even though they are under common control, can she set up a defined contribution plan for Corporation J alone? Yes. The common control rules say that for most Internal Revenue Code purposes, all employees of either business are deemed to be employed by the other. But because there are no nonhighly compensated employees in either business, it makes no real difference. The plan will automatically satisfy Code sections 410(b) and 401(a)(4).

Even though they are under common control, can she set up a defined benefit plan for Corporation J alone? No. Because it is a defined benefit plan, Code section 401(a)(26) applies and requires that she cover both of employees of the group of businesses under common control, Jane and Karl.

For more on the consequences of common control status, see Chapter 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)

© 2021, Inc.