Controlled Group Question

I have a question about Controlled Group relationship.

Company A is owned 100% by Owner A. Company A has a Safe Harbor 401(k) Plan and a few employees.

Company B is owned 50% by Owner A and 50% by Owner A's spouse. There are no other employees in Company B and no 401(k) Plan.

Would Company A and B be part of a Controlled Group? To me, it seems like they would be due to attribution. So, Owner A owns 100% of Company A and 100% of Company B (50% on her own and 50% by attribution). In this case, would we need to know Owner A's compensation from Company B as well as the spouse's compensation from Company B and test the aggregate compensation from both companies in Company A's 401(k) Plan? The spouse would also be eligible to contribute to Company's A's 401(k) Plan, correct?

Thank you.

Yes, it's a controlled group.

As to counting the compensation, it depends on whether Company B is a participating employer in the plan AND how the document reads.

Thanks, Bill!

How would it be possible to exclude Company B's Compensation in company A's 401(k) plan? Since Company B has only HCEs (two owners) and Company A has some NHCEs, wouldn't Company B fail coverage when tested separately (since no NHCEs benefit in Company B) and the compensations would have to be aggregated?

Thanks.

You can exclude Company B because they are all HCEs. You can always exclude HCEs without failing coverage. Again, make sure the document reads correctly. In some documents, you have to choose to exclude compensation from a related employer whether or not it has adopted the plan as a participating employer.

Now if Company B had a plan and was trying to exclude Company A, THEN you would fail the coverage test.

Thanks, Bill! That makes sense.

I agree the two companies are part of a controlled group.  So, compensation for determining HCE status would be aggregated.  Compensation as far as contributions on behalf of the participants, however, is usually based on compensation from the participating employer (confirm by checking document as Bill states), in which case, Company B comp would not be used for Company A plan contributions (Company B does not appear to participate in Company A's plan (which is fine as Bill states)).  The spouse does not appear to be able to participate in Company A's plan unless she is an employee of Company A (based on the ownership percentages you provided, she does not appear to be a self-employed owner of Company A). 

If you want to include comp from Company B for purposes of contributions and you want to include the spouse in the Company A plan, perhaps Company B should adopt the Company A plan (especially since there are no other employees in Company B).