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

Featured Jobs

Defined Benefit Pension Consultant

The Ryding Company
(Remote / Westlake Village CA)

The Ryding Company logo

Benefits Supervisor

NFL Player Benefit Office
(Baltimore MD)

NFL Player Benefit Office logo

Manager - Defined Contribution Plans

M2B Retirement Consulting LLC
(Remote / Wexford PA)

M2B Retirement Consulting LLC logo

Senior Actuarial Analyst/ Project Manager

Van Iwaarden Associates
(Remote / Minneapolis MN)

Van Iwaarden Associates logo

Distribution \ Loan Clerk

Retirement, LLC
(Remote / Oklahoma City OK)

Retirement, LLC logo

Retirement Plan Administrator

Nicholas Pension Consultants
(Remote / Rancho Cordova CA / Corona CA)

Nicholas Pension Consultants logo

Senior Administrator / Site Manager

Nicholas Pension Consultants
(Remote / AZ / ID / NM / NV / UT)

Nicholas Pension Consultants logo

Plan Consultant

Sentinel Benefits & Financial Group
(Remote / Wakefield MA)

Sentinel Benefits & Financial Group logo

Compliance Analyst - 401(k) Administration

Ubiquity Retirement + Savings
(Remote / San Francisco CA)

Ubiquity Retirement + Savings logo

Sr. Retirement Plan Administrator

Tycor Benefit Administrators, Inc.
(Berwyn PA)

Tycor Benefit Administrators, Inc. logo

Defined Benefit Plan Consultant

Sentinel Benefits & Financial Group
(Remote / Wakefield MA / Melville NY / Bingham Farms MI)

Sentinel Benefits & Financial Group logo

Senior Retirement Plan Administrator

Enhanced Retirement Solutions
(Rochester NY)

Enhanced Retirement Solutions logo

Junior Implementation Specialist - 401(k) Administration

Ubiquity Retirement + Savings
(Remote / San Francisco CA)

Ubiquity Retirement + Savings logo

DC Plan Administrator

Retirement, LLC
(Remote / Oklahoma City OK)

Retirement, LLC logo

Senior Plan Consultant

Sentinel Benefits & Financial Group
(Remote / Wakefield MA)

Sentinel Benefits & Financial Group logo

Retirement Plan Administrator

Hessel & Associates, LLC
(Remote / IL)

Hessel & Associates, LLC logo

DC Administrator

United Benefit Pensions Inc.
(Remote / Melville NY)

United Benefit Pensions Inc. 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.