Controlled Group Rules
Controlled group rules are
incorporated in ERISA law so that employers cannot use multiple
corporations to escape coverage or nondiscrimination rules.
HOW IS STOCK OWNERSHIP DETERMINED?
WHAT IF THERE ARE DIFFERENT CLASSES OF STOCK?
WHAT IF THE PARENT COMPANY IS A FOREIGN CORPORATION?
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:
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
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
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
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.
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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