Retirement Plan Consultant
Cetera Retirement Plan Specialists
Blue Ridge ESOP Associates
(Charlottesville VA / Telecommute)
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|Question 201: If several C corps within a controlled group own 80% of a partnership, then it seems that a parent-sub situation exists. Thus, can an employee of one of the C corps participate in the 401(k) plan of the partnership?|
Answer: Technically, your first sentence is not necessarily true, and so we had best start there.
Let's say you've checked things out and indeed ABC is under common control with A and B. What does that mean? It means that, for a host of pension and welfare benefit plan rules in the Internal Revenue Code, all employees of all three entities are deemed to be employed by a single employer.
Does that mean an employee of A or B can participate in ABC's 401(k) plan without violating the IRC's exclusive benefit rule? Yes. Moreover, they must be counted in determining whether the plan satisifies IRC 410(b). However, assuming that the plan can pass 410(b) without them, the plan is not required to cover them. Hence, you should look at the document carefully. In any case, to deal with deduction issues, it makes sense for the corporations to cosponsor the plan.
I discuss the types of controlled groups in Chapter 6 of my book, Who's the Employer. Attribution is covered in Chapter 7. The consequences of controlled group (or common control) status are explained in Chapter 10. I examine groups of trades or businesses under common control in Chapter 12.
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.