Leased Employees from within a controlled group

A large employer (closely held by father and 3 kids) has 7 leased employees (no coverage issues, this is purely an allocation eligibility issue); the Plan excludes leased employees.  But as it turns out, the leasing employer is in a controlled group with the recipient employer, as the father, and a family trust comprised of the spouse and three kids, are also the owners of the leasing employer.  As such, are these 7 employees still able to be excluded due to the leased employee classification; or should they be benefitting participants because the controlled group means they are just treated as employees of the sponsoring employer?

If they are members of controlled group they would simply be employees for coverage testing. Whether or not they are eligible would be determined by the Plan Document. Has that Controlled Employer adopted the Plan?

No the controlled employer(the leasing employer) has not adopted the plan sponsored by the recipient employer.

Agree with Lou, you cannot statutorily exclude from coverage and nondiscrimination testing but whether they must be covered/benefit depends on the terms of the plan with respect to their employer, which you said did not adopt and is not automatically covered.