Source: http://www.benefit-resources.com/blog/bid/113641/Controlled-group-rules-What-you-need-to-know
Timestamp: 2016-05-28 05:52:17
Document Index: 135494519

Matched Legal Cases: ['§881', '§414', '§414', '§401', '§401', '§401', '§404', '§410', '§411', '§415', '§416', '§125', '§105']

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Beth Harrington on Jan 18, 2012 2:10:00 PM
Controlled group rules are incorporated in ERISA law so that employers cannot use multiple corporations to escape coverage or nondiscrimination rules.
See our Advanced Discussion on Controlled Groups here. 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:
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
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 testing purposes (see previous question.)
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.
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