Subscribe (Free) to
Daily or Weekly Newsletters
Post a Job

Featured Jobs

Retirement Plan Administrator

Nicholas Pension Consultants
(Remote)

Nicholas Pension Consultants logo

In-house Counsel, Legislative and Regulatory Advisor

Cheiron, Inc.
(Mc Lean VA / Charlotte NC / Chicago IL / CA / MD / NJ / NY / PA)

Cheiron, Inc. logo

Quality Control Specialist

Pentegra
(West Harrison NY)

Pentegra logo

Defined Benefit Consultant

AimPoint Group
(Remote)

AimPoint Group logo

Senior Defined Benefits Consultant

Loren D. Stark Company
(Remote)

Loren D. Stark Company logo

Defined Contribution Consultant

AimPoint Group
(Remote)

AimPoint Group logo

ESOP Administrator

Blue Ridge ESOP Associates
(Remote)

Blue Ridge ESOP Associates logo

Compliance Specialist II

EPIC Retirement Plan Services
(Remote / AL / AZ / CO / CT / FL / GA / IA / IL / IN / MA / MD / ME / MI / MN / MO / NC / NE / NH / NV / NY / PA / SC / TN / TX / UT / VA / VT / WI / WY)

EPIC Retirement Plan Services logo

Plan Document Specialist

The Ryding Company
(Remote / CA / HI / NC / NY / PA / TX / UT)

The Ryding Company logo

Experienced Retirement Plan Administrator

Karel-Gordon & Associates
(Remote / Deerfield IL)

Karel-Gordon & Associates logo

Documents and Operations Coordinator

Jordan & Associates Retirement Services
(Remote / Santa Rosa CA)

Jordan & Associates Retirement Services logo

Retirement Plan Administrator

The Nolan Company
(Remote)

The Nolan Company logo

Retirement Plan Administrator

PPG Retirement Plan Services, Ltd.
(Remote / Kenosha WI)

Associate General Counsel

Central Pension Fund of the IUOE
(Washington DC)

Client Service Specialist

EPIC Retirement Plan Services
(Remote / AL / AZ / CO / CT / FL / GA / IA / IL / IN / MA / MD / ME / MI / MN / MO / NC / NE / NH / NV / NY / PA / SC / TN / TX / UT / VA / VT / WI / WY)

EPIC Retirement Plan Services logo

View More Employee Benefits Jobs

Free Newsletters

“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

Grandchildren as Highly Compensated Employees

(Posted May 15, 2001)

Question 98: John owns 100% of a company. His granddaughter works for the company. John would like her to be a highly compensated employee, but he doesn't want to pay her the $85,000 needed to put her in that category on her own. But is she an HCE due to deemed ownership of her grandfather's stock?

Answer: Yes, but only if some changes are made.

HCE attribution comes through IRC 318, the same section that describes attribution for purposes of the affiliated service group rules. Under section 318, there is attribution from a grandchild to a grandparent but not the other way (from a grandparent to the grandchild). Hence, she is not deemed to own any stock merely because John does.

So the trick here is to find a way to make her a "5% owner" (defined in the Code to mean a person who owns more than 5% of the company). John might give her an option to buy more than 5% of the company--that is the simplest way of handling things. Or he could give one of the granddaughter's parents an option to buy more than 5% of the company; the parent would be deemed to own the stock through option attribution, and she would then be deemed to own the stock through attribution from her parent.

Of course, this assumes that we aren't dealing with a professional corporation. If so, state law usually restricts ownership to licensed members of the profession, which limits the ability to transfer stock or give options.

The attribution rules for HCEs and ASGs are discussed in more detail in Chapter 14 of my book, Who's the Employer?.


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)

© 2022 BenefitsLink.com, Inc.