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Who's the Employer?

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.

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