Company Subsidiary to Start Plan or Adopt Current One

A plumbing & construction company currently has a plan.  They have set up another service company (same owners) with a different TIN.  Can the new company simply adopt the current plan, or do they need to set up their own plan since they have a different TIN?  Thanks for any help.

The second company certainly could become a participating employer to the plan.  There'll be arguments for/against separate plans, but it's "easy enough" to do.

If they are a controlled group, and it sounds like they probably are, one Plan would be the simple straight forward approach.

You can do a 2nd plan but you'll need to test the whole group as one employer if they are a controlled group for both Non-discrimination and BRF.

If it is not a controlled group or affiliated service group, you could have a multiple employer plan, which probably is not an issue for federal securities law purposes because of the relationship of the two companies, even though short of controlled group status.

State securities law compliance is a separate issue but often parallels federal securities law.

If what I am posting sounds strange to you, you are not alone.

KevinMc: If the two companies have the same five or fewer owners (which is likely the case) then this would be a "brother-sister" controlled group under Section 414 of the Code. The other company may (and should) adopt the current plan. Having a separate plan for the other company in the same controlled group complicates coverage and non-discrimination testing, and the hassle/cost of testing is generally not worth it.  

On 5/15/2025 at 3:45 PM, QDROphile said:

If it is not a controlled group or affiliated service group, you could have a multiple employer plan, which probably is not an issue for federal securities law purposes because of the relationship of the two companies, even though short of controlled group status.

State securities law compliance is a separate issue but often parallels federal securities law.

If what I am posting sounds strange to you, you are not alone.

QDROphile: Out of curiosity, have you seen cases where the MEP could not be characterized as an ammalgomation of separate underlying plans, and could not avail itself of Federal and (state law) exemptions for 33 Act registration?

On a straightforward reading of the statute, the Securities Act of 1933 § 3(a)(2) exemption for an interest or participation under a retirement plan’s trust “for a single employer” might not fit regarding a multiple-employer plan. Similar issues are in play about Investment Company Act of 1940 § 3(c)(11).

But the SEC’s staff have issued several no-action letters on particular situations in which the distinct employers, while not one employer under I.R.C. § 414(b)-(c)-(m)-(n)-(o), are otherwise closely related. Or some involve circumstances in which applying the statute would burden a retirement plan beyond what the SEC staff assumes is the harm Congress meant to legislate against. A search in a law publisher’s database retrieves those no-action letters.

(It’s difficult to discern what does not get no-action relief because an applicant or its attorney would—after a conference or a less formal communication reveals that the desired response would not be forthcoming—withdraw the request.)

Also, one might evaluate whether an interest or participation under a retirement plan is a security.

This is not advice to anyone.

Layering on Peter Gulia’s excellent summary, it is difficult to determine when the relationships among the participating employers not are related  (or whatever) enough to qualify for the exemption from registration. However, in one arrangement in my experience, the decision was to disassemble and have some of the employers go their separate ways with their-spun off plans. I am not aware of any enforcement action or participant claim of violation.