Subscribe Now!
Free Daily News, Jobs, Webcasts, Discussions
Display and Distribute
Your Job Openings
COVID-19 News
COVID-19 Webcasts

Featured Jobs

5500 Specialist

401K Generation
(Altamonte Springs FL)

401K Generation logo

Client Service Manager

July Business Services
(Telecommute / Waco TX)

July Business Services logo

Manager, Defined Contributions Administration

Definiti
(Telecommute / The Woodlands TX / University Place WA / Dallas TX / Erie PA / Canonsburg PA / West Palm Beach FL)

Senior Retirement Plan Administrator

Goldberg, Swedelson & Associates
(Telecommute / Encino CA)

Goldberg, Swedelson & Associates logo

Defined Contribution Administrator

PACETPA
(Telecommute / Clovis CA / Las Vegas NV)

PACETPA logo

Trust Funds Accountant

RFK Medical Plan/JDLC Pension Plan
(Keene CA)

Defined Benefits Combo Cash Balance Consultant

Loren D. Stark Company (LDSCO)
(Telecommute)

Loren D. Stark Company (LDSCO) logo

Defined Contribution Plan Administrator

401k America
(Telecommute / Chino CA)

Director, Retirement Benefits

Wespath Benefits and Investments
(Telecommute / Glenview IL)

Wespath Benefits and Investments logo

Free Daily News and Jobs

“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

Subsidiary Employees Left In The Cold

(Posted April 24, 2004)

Question 261: A bank holding company (which owns a bank 100%) becomes the sole owner of an insurance agency. Should the insurance agency be included in the bank's 401(k) plan? Currently the bank holding company won't even allow the insurance agency to start a separate plan.

Answer: Not necessarily. In responding to your question, I will refer to my book, Who's the Employer?. (Subscribers can click to view online the text of references to sections in the book.)

This is a classic parent-subsidiary controlled group. (See WTE 6:03.) The group includes a parent, such as the holding company, and all its subsidiaries. As such, all employees of any of the members of the group are deemed to be employed by a single employer for retirement plan purposes. (See WTE 10:01.) It does not matter that the bank itself does not own an interest in the insurance agency.

Does that fact answer your question? No. It merely tells us how to test for coverage and other issues.

Are the employees of the insurance company entitled to participate? Only if the plan document says so.

Is the plan document required to allow them to participate? Yes, if it is a standardized plan, a SEP or a SIMPLE. Otherwise (which means most of the time), the answer is no, so long as the plan can pass the coverage requirements of the Code without the insurance company employees. (See WTE 10:04.) Given the demographics of the typical bank, it would be extremely unusual for the plan to fail the coverage test, even taking the nonparticipating insurance company employees into account.

This question demonstrates a common misconception about the controlled group rules, and is one of the most common questions I receive. Many people do not understand the question that the controlled group rules are designed to answer. The rules don't answer, "who do I have to cover?" They don't answer, "What's my 415 limit?" They don't answer, "How do I run the ADP test in this situation." The questions the controlled group rules answer are, "Who are the employees of this employer?" and "Who is the employer(s) of this employee?" Having answered those questions, the rest of the qualified plan rules take over to resolve the other issues.

I'm absolutely delighted to announce that my employer, SunGard Corbel, will be sponsoring a series of half day workshops on Who's the Employer issues, where we'll be able to go into depth on questions like these. I'll be going around the country teaching them, as will my friends Stephen Forbes and Craig Hoffman. For information go to the SunGard Corbel seminar site and click on a listing for a seminar near you.


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)

© 2020 BenefitsLink.com, Inc.