Welcome to Executive Benefit Plans, Inc.

 

Main Link Column
Select this link Retirement Plans
Select this link Strategies
Select this link Employee Benefits
Select this link Individual Benefits
Select this link Participant Info
Select this link White Papers
Select this link Consulting Service
Select this link Proposal Request
Select this link Administration
Select this link Contact
Select this link News
Select this link Blog
Select this link Home

 

 Controlled Group Rules

Controlled group rules are incorporated in ERISA law so that employers cannot use multiple corporations to escape coverage or nondiscrimination rules.

WHAT IS A CONTROLLED GROUP OF CORPORATIONS?
A controlled group is any two or more corporations connected through stock ownership in any of the following ways:

  • Parent-subsidiary group
    - 80% of stock of each (subsidiary) corporation is owned by another member of the group
    - Parent corporation must own 80% of the stock of at least one of the other members of the group

  • Brother-sister group
    - The same five or fewer individuals own at least 80% of the stock of the corporations
    - 'Individual' includes ownership by an estate or trust
    - 'Ownership' includes having a controlling interest and effective control of the corporations

  • Combined group
    - Combination of a Parent-subsidiary, and a Brother-sister group
    - 'Parent' company is also a sibling in the 'Brother-sister' group

HOW IS STOCK OWNERSHIP DETERMINED?

  • Family attribution rules apply, so stock owned by a spouse, parent or child is often deemed to be owned by one person

  • State law typically determines the actual ownership of stock

  • Ownership can be based on voting power or on stock value

WHAT IF THERE ARE DIFFERENT CLASSES OF STOCK?

  • If there is more than one class of stock, each classification of stock must be considered to determine the voting power and stock value

  • Voting rights, dividend rights, liquidation preferences are all considerations in determining stock value

  • Stock can be excluded from consideration if it is Treasury or nonvoting preferred stock

WHAT IF THE PARENT COMPANY IS A FOREIGN CORPORATION?

  • The controlled group rules for qualified retirement plans apply to all corporations doing business in the U.S., even if the foreign parent is not a component member of a controlled group (e.g., foreign corporation taxable under IRC 881)

  • Nonresident aliens who do not have U. S. source income may be excluded from coverage testing

  • All companies owned by the foreign parent must be considered in controlled group testing even if they are separate subsidiaries for corporate income tax purposes

CAN THE COMPANIES IN A CONTROLLED GROUP BE TREATED AS SEPARATE COMPANIES?

The IRS does have a procedure through which a company can request to be treated as a Separate Line of Business. (see IRC 414(r)) Following are limitations for these requests:

  • Must have a valid business purposes

  • Must have at least 50 employees within each line of business

  • Restrictions on HCE ratios in each separate line of business

  • Must notify IRS to request their approval

HOW IS QUALIFIED PLAN COMPLIANCE TESTING AFFECTED BY THE CONTROLLED GROUP RULES?

The employees of all corporations that are members of a controlled group are deemed to be employed by a single employer. (see IRC 414(b)) The following qualified plan provisions are impacted by this rule:

401(a)(4) Nondiscrimination rules

401(k) Actual Deferral Percentage (ADP) test

401(m) Actual Contribution Percentage (ACP) test

404(a) Deduction rules

410(b) Coverage testing

411 Vesting requirements

415 Contribution limits

416 Top heavy rules

DO ALL MEMBERS OF A CONTROLLED GROUP HAVE TO PARTICIPATE IN ONE PLAN?

No. Members of a controlled group may each have a different plan. Similarly, two or more members of the controlled group may adopt a single plan. In either case, all employees of the controlled group must be taken into account for testing purposes.

WHAT ARE THE CONSEQUENCES FOR FAILURE TO FOLLOW THE CONTROLLED GROUP RULES?

The IRS and Department of Labor (DOL) both have compliance correction programs. Generally, a submission must be made under the appropriate corrections program, a fee is paid, and testing must be performed for the periods in question. Additional contributions, penalties, and interest may apply. Please discuss these filings and your correction options with your ERISA attorney.

DO CONTROLLED GROUP RULES APPLY TO WELFARE BENEFIT PLANS TOO?

Yes, similar rules apply to welfare benefit plans such as Cafeteria plans (125), Health Savings Accounts, Archer MSAs, and self-insured medical reimbursement plans (105(h)). Please discuss with your insurance advisor for additional information.

If you require assistance to determine if this information affects your business please contact us to schedule a no cost consultation.

Contact Us  |  Proposal Request

Source:  www.IRS.gov

Retirement Plans

Select this link Consulting Services

Select this link Qualified Plans

   Select this link Savings Calculator

   Select this link  401k

   Select this link Safe Harbor 401k

   Select this link Roth 401k

   Select this link SIMPLE 401k

   Select this link Profit Sharing

   Select this link Money Purchase

   Select this link Defined Benefit

   Select this link Cash Balance

   Select this link Successor Plan Rule

   Select this link IRC 401(a)

   Select this link ERISA 404(c)

   Select this link Prohibitive Transactions

   Select this link Fiduciaries

   Select this link Contribution Limits

   Select this link Controlled Groups

Select this link Other Plans

   Select this link IRAs

   Select this link 419(e)

   Select this link SEPs

   Select this link SARSEPs

   Select this link SIMPLE IRA

Other Links

Select this link Tests

    Select this link ACP Test

    Select this link ADP Test

Select this link Restatements

Select this link Amendments

Select this link Mistakes

Select this link Catch-up

Select this link Funding Limits

Select this link EGTRRA Q&A

Select this link Conduit IRA

Select this link Pricing

Select this link Quote

Select this link White Papers

Select this link FAQs

Select this link Glossary

 

Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

This page was last reviewed and/or updated on Friday, July 03, 2015 05:21 PM

 

Privacy Statement - Executive Benefit Plans, Inc. Copyright 1996 - 2015 All Rights Reserved - Legal Statement
Website Powered by UHSystems