Leaving a Controlled Group

I am a TPA for a profit sharing plan that is sponsored by a 3-entity controlled group. On 1/1/21, one of the members ceased to be part of the controlled group due to a change in ownership. Sec 410(b)(c) provides a transition period of the last day of the plan year following the year of the change for coverage testing purposes, does this transition period also apply to the plan documentation. When would the plan document have to be amended to remove one of the members as a participating employer? Can all 3 entities share in a profit sharing contribution for the 2021 plan year under the current plan document?

Despite whatever tolerances the Internal Revenue Code might allow about one or more conditions for treatment as a tax-qualified plan, consider that not amending the plan to end the participation of the no-longer-commonly-controlled organization might result in a multiple-employer plan.

A multiple-employer plan might affect consequences under laws beyond tax law, including ERISA’s title I and banking, insurance, and securities laws.

The plan’s sponsor, administrator, trustee, and investment manager might check the plan’s investment arrangements to find whether any requires the investor to be a single-employer plan. Some collective investment trusts and other kinds of investments not registered under one or more securities laws are available only to a single-employer plan.

Others might respond to your question about whether all three organizations may or should share in a contribution for a year for which the three organizations were two (unrelated) IRC § 414 employers.

I'm not sure if it makes things less complicated, but the plan is a trustee directed pooled profit sharing plan.

Just something else to throw out there - did that employer formally adopt the plan, or were they just "swept in" by a standardized prototype?

My thought would be to look at the supplemental participation agreement, as well as any plan language governing separate employers (whether related or not).

On 1/25/2022 at 2:03 PM, B21 said:

When would the plan document have to be amended to remove one of the members as a participating employer

On or before the date as of which it wanted to no longer participate in the plan, unless the plan contained a provision that automatically terminated the participation of an entity that is no longer a member of the controlled group, which is sometimes the case.

On 1/25/2022 at 2:03 PM, B21 said:

Can all 3 entities share in a profit sharing contribution for the 2021 plan year under the current plan document?

Sure, but for part of the year the plan will be multiple employer, which means you would need to test nondiscrimination differently.