Carpenter Morse Group
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Central Pension Fund of the IUOE
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Prime Pensions, Inc.
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Retirement Plan Legal Specialist Pentegra
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Nova 401(k) Associates
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Jr Retirement Plan Administrator/ Administrative Assistant Hochheiser Deutsch & Co, Inc.
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Defined Benefit Calculation Specialist/Actuary The Angell Pension Group, Inc.
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Trucker Huss, A Professional Corporation
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United 401(k) Plans, Inc.
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Nicholas Pension Consultants
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Bates & Company
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Retirement Plan Relationship Manager ERISA Services, Inc.
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Central Pension Fund of the IUOE
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Compass Retirement Consulting Group, Inc.
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Retirement, LLC
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Question 75: Company A, an e-business consulting firm, plans to spin off Company B, in the same business. Company A will own 20% of Company B. The other 80% of Company B will be owned by its employees (who had been employees of Company A). These individuals no longer will be Company A employees or shareholders. There are no options, and the shareholders in the two companies will be unrelated. Both companies are incorporated. Neither will perform services for the other. Can we still continue to cover these 17 employees under Company A's current 401(k) plan? Do we have to? |
Answer: Let's start with the notion that after the spinoff, the two businesses are totally separate entities. You need at least 80% common ownership to have a controlled group, and you don't have that here. Because neither is performing services for the other, they are not a management function group under IRC 414(m)(5), nor a B-Org type of affiliated service group. Because both are incorporated but neither is a professional service corporation, they are not an A-Org type of affiliated service group, even if they are related in providing services to the public. Probably the easiest thing to do is to let Company B adopt its own plan for its own employees. |
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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