DB/DC combined deduction limit (controlled group)

Does the exemption to the DB/DC combined 25% deduction limit where the employer contribution to the DC plan is limited to 6% of compensation apply to the plans sponsored by a single employer regardless if the employer is part of a controlled group & there is a DC plan sponsored by another member of the group? Specifically, can a sole proprietor who operates two separate businesses sponsor a cash balance & profit sharing plan (limited to 6%) for one entity & a separate profit sharing plan for the second entity & contribute 25% of compensation?

You may get a more accurate/complete answer from an actuary, but in my limited reading of the 404(a)(3)(iv), it appears that the two PS plans would be aggregated and therefore, the total 31% you have allocated between the two PS would be okay. 

8 hours ago, FORMER ESQ. said:

You may get a more accurate/complete answer from an actuary, but in my limited reading of the 404(a)(3)(iv), it appears that the two PS plans would be aggregated and therefore, the total 31% you have allocated between the two PS would be okay. 

You started out okay. But your conclusion is inconsistent.

3 hours ago, Mike Preston said:

But your conclusion is inconsistent.

Please explain. I am here to learn. 

The 31% limit is the combined deduction limit for the DC/DB contributions for DB plans not covered by the PBGC. There is an exemption to this combined limit if the employer does not contribute more than 6% of compensation in the DC plan. I don't think the controlled group rules apply to Sec 404(a)(7) deduction code. Therefore, would not have to treat the two entities as a single employer & can provide a 25% profit sharing contribution for the entity that does not sponsor the cash balance plan.

On 1/8/2021 at 6:15 AM, FORMER ESQ. said:

Please explain. I am here to learn. 

I disagree with both substantive responses in this thread.  First, FORMER, while it is clear you are correct that the two DC plans are aggregated, the 31% is the limitation only when 404(a)(7) applies.  If there were no DB contributions (something you seem to be assuming, although that would be a very unusual thing to assume in the context of this discussion) then 404(a)(7) doesn't apply.  In which case the limitations are 25% for each separate DC plan. 31% doesn't enter the discussion. Of course, the 25% is subject to both limitations of 415 and 401a17.  The OP is genuinely misleading in that it uses "cash balance & profit sharing plan (limited to 6%)" which should read "cash balance & profit sharing plan (where the cash balance plan has a substantial contribution and where the profit sharing plan is limited to 6%)".  I think you are interpreting it to read "cash balance & profit sharing plan (where the cash balance plan has no contribution and where the profit sharing plan is limited to 6%).  I just  don't think that is a reasonable interpretation.

B21, you state: " I don't think the controlled group rules apply to Sec 404(a)(7) deduction code." A cite?

14 hours ago, Mike Preston said:

B21, you state: " I don't think the controlled group rules apply to Sec 404(a)(7) deduction code." A cite?

This is incorrect. The controlled group rules certainly apply to the 404(a)(7) deduction rules. See Treasury Regulation 1.414(b) and 1.414(c).

Mike, I refer to 414(c)

414(c)(1)In general.—

Except as provided in paragraph (2), for purposes of sections 401, 408(k), 408(p), 410, 411, 415, and 416, under regulations prescribed by the Secretary, all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer. The regulations prescribed under this subsection shall be based on principles similar to the principles which apply in the case of subsection (b).

It doesn't mention section 404(a) which is how I based my conclusion.

Former ESQ,-I agree with you that 404(a)(7) would apply based on 1.414(c) if the two entities adopted the same plan not if each maintained separate plans.

10 hours ago, B21 said:

Mike, I refer to 414(c)

414(c)(1)In general.—

Except as provided in paragraph (2), for purposes of sections 401, 408(k), 408(p), 410, 411, 415, and 416, under regulations prescribed by the Secretary, all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer. The regulations prescribed under this subsection shall be based on principles similar to the principles which apply in the case of subsection (b).

It doesn't mention section 404(a) which is how I based my conclusion.

Former ESQ,-I agree with you that 404(a)(7) would apply based on 1.414(c) if the two entities adopted the same plan not if each maintained separate plans.

 

I think you'll find that 404 traces back to 401.  I'll let FORMER address your "not if each.." supposition.