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Question 256: A and B, which are members of a controlled group, each sponsors a plan that covers only employees who work for the sponsoring company. If Employee X works 600 hours for A and makes $12,000 and 500 hours for B and makes $11,000, is X in both plans, assuming each plan has a 1-year service requirement? What is the deductible contribution for X in each plan and what compensation is used for allocation purposes in each plan? | |
Answer: DOL and IRS regulations give us very specific answers to your questions. The regulatory answers conform to the general philosophy of Internal Revenue Code section 414(b), namely that all employees of controlled group members are deemed to be employed by a single employer. WTE 10:01. I will be referring throughout to my book, Who's the Employer?. (Subscribers can click to view online the text of those references.)
Deduction limits are another matter. If each company sponsors its own plan, then each company computes its deduction limit separately, as though a controlled group did not exist. The companies have a joint limit only if they jointly sponsor a plan. WTE 10:17. |
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.
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