Contact Us   |   Your Cart   |   Sign In   |   Join NIPA
Community Search
News from, October 12, 2011
Share |

NIPA's bi-weekly e-newsletter, News from, delivers the most up-to-date industry and association news.

News from archives

The Latest Q&As for TPAs

Q: With regard to a controlled group, can you explain the difference between "actual" and "identical" ownership?

Sure. Actual is what it sounds like: what the person actually owns. Identical (IRS term, not mine), refers to the lowest percentage the individual owns in any of the companies being tested. So, if Owner A has 25% of Company 1 and 10% of Company B, Owner A's actual ownership is 25% and 10%, respectively, but Owner A's identical ownership is 10% with regard to the test. If there was a third company being tested, and Owner A had 5% of that company, Owner A's identical ownership would be 5%. To be a controlled group, you add up each owner's identical ownership in the companies being tested, and the total of the identical ownership percentages must be more than 50%.

Background Information

401(k) plan covers Company A with six owners. Three of those owners also own Company B.  On 08/31/2009, one of the Company A owners passes away, leaving five owners that now have a controlled group with Company B due to the like ownership of 50% or greater in both companies. Company A maintains the 401(k) plan, and has a 07/31 fiscal year end. Company B has a SIMPLE plan and maintains a 12/31 year end. We were planning on including the Company B employees in the Company A document effective with the 08/01/2010 start of the plan year.   

Q: Is it correct that the two companies are a controlled group? I need to be sure of that before I can make any recommendations to the client.

A: The common ownership must be at least 80% for the employers to be a controlled group.  Based on the information provided, this is not a controlled group; common ownership is only 60%.  I'm assuming the ownership percentages are the same for each owner.

Q: I should clarify — the identical ownership is over 50% (54.32%) between the five owners, and the common ownership is more than 80% (88.88%) between the same five owners:

Company A
Company B
Owner 1
Owner 2
Owner 3
Owner 4
Owner 5

It is my understanding that since the common ownership by 5 or fewer was greater than 80%, and the identical ownership was at least 50%, it was a controlled group.

A: Your understanding is correct.  However, only individuals who have ownership in both Company A and Company B are included in the group of five or fewer individuals (section 1.1563-1(a)(3)(ii)(C)).  Disregarding Owners 4 and 5, we have common ownership of only 54.32%; the two companies do not comprise a controlled group. 

TAG is a technical support service that offers answers to pension questions via e-mail. TAG subscribers have access to an extensive Web site with a full array of links to primary source materials, a database of over 4,000 FAQs asked by pension professionals, tools and much more. Subscribers also receive daily updates on breaking news in the industry. For more information about TAG, go to: TAG is part of Wolters Kluwer Law & Business, which includes CCH, Aspen Publishers, and

Have a comment on a recent NIPA News story?

Keep the conversation going and visit us on LinkedIn!

Association Management Software Powered by YourMembership  ::  Legal