Blue Ridge ESOP Associates
(Charlottesville VA / Telecommute)
Retirement Plan Consultant
Cetera Retirement Plan Specialists
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|Question 215: Company A, with one HCE and no NHCEs, has an overfunded defined benefit plan with a June 30 fiscal year. Company B has one NHCE and one HCE. We recently discovered that A and B were part of a controlled group from 1998 until May 1, 2002. Under the terms of A's plan, B's NHCE will need to accrue a top-heavy minimum benefit. Will the two corporations be treated as a controlled group for all of 2002 because a controlled group existed for part of the year (Jan. 1 through May 1)? Company B has never cosponsored the plan.|
Answer: No. You may be confusing the controlled group rules for retirement plans with the rules for income taxes.
Let's apply the regulation to your situation. The two companies are certainly not a controlled group for retirement plan purposes for the 2002 calendar year. Rather, they are a controlled group from 1998 until May 1, 2002.
What does that mean for the NHCE? That means he was deemed to be an employee of the plan sponsor until May 1. If he was credited with 1,000 or more hours of service between the start of the plan year on July 1, 2001 and May 1, 2002, he is entitled to a top-heavy minimum benefit. Is he entitled to a benefit for the 2002-2003 plan year? Of course not. At no point during that year is he deeemed to be an employee of the sponsor.
This is just one of the testing issues that arise in dealing with changes in controlled group status. Organizational changes also can profoundly affect ADP testing, eligibility, vesting, and other benefit accrual issues. (The third edition of Who's the Employer addresses these issues in much greater detail than previous editions.)
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.