Identify the employers before designing owner benefits
A founder may operate one company with employees and another with only the founder on payroll. The second company’s separate EIN does not necessarily allow an isolated owner-only retirement analysis. Begin with legal entities, business activities, ownership percentages and relevant attribution. The plan’s employer-aggregation rules can require consideration of workers across companies even when banking, payroll and tax returns remain separate.
Treasury Regulation section 1.414(c)-2 describes trades or businesses under common control, including parent-subsidiary and brother-sister frameworks. Other aggregation rules can also apply. The owner should obtain a complete group analysis before assuming a separate company creates a separate workforce for retirement qualification and contribution purposes.
Calculate identical ownership under a simplified model
Suppose two people own Company A 70% and 30%, and Company B 60% and 40%. For an illustrative identical-ownership comparison, the first person’s overlapping share is 60% and the second person’s is 30%, totaling 90%. The numbers indicate why common ownership deserves analysis even though neither company is owned by the other.
That calculation is not a complete controlled-group determination. The actual tests, voting or value measures, entity types, attribution and relevant persons must be applied. A founder should not use a single eighty-percent rule as a universal shortcut for every structure. Prepare the complete ownership matrix and identify which framework is being tested. The example shows why two different cap tables can still produce substantial common control rather than proving that matching percentages are required.
Build a group-wide ownership and service file
Collect formation records, ownership schedules, options or other relevant interests and family relationships affecting attribution. Record changes by date. A year-end chart may not explain the employer relationship during the period in which employees earned service or the owner made contributions. Keep the legal chart and the retirement aggregation analysis linked but distinct.
Gather employees, compensation, hours and plan participation for every potentially aggregated business. Include companies that do not currently sponsor a plan. The administrator needs to determine which employees and arrangements belong in the qualification review. A founder’s statement that another company has no retirement plan does not establish that its employees can be ignored by the company that does sponsor one.
Keep different aggregation regimes separate
Retirement common-control analysis should not be copied automatically from income-tax consolidation, state combined reporting or the payroll common-paymaster setup. Similar ownership concepts can use different rules and purposes. Identify the authority supporting each conclusion. A corporation can have separate payroll reporting while its workforce is considered together for specified retirement requirements.
Review affiliated-service-group and other applicable rules where common-control tests do not resolve the structure. A service relationship can require analysis even without the ownership percentages associated with a conventional controlled group. Do not conclude that every arrangement below a familiar threshold is safe. Give the administrator service contracts and operating facts where relevant, and preserve the scope of the conclusion rather than describing a narrow ownership test as a universal exemption.
Apply the result before funding and testing
Once the employer group is determined, coordinate eligibility, coverage, nondiscrimination and contribution-limit work under the applicable rules. The group conclusion does not mean every company must use an identical plan design, but separate designs require supported testing and administration. Preserve the final census and calculations with the ownership analysis.
This article does not determine a particular controlled group, calculate all attribution or prescribe a plan structure. The actual ownership, services and current rules control. The useful decision is to identify the relevant employer group before promising an owner-only benefit through a second company. That lets the founder evaluate the real employee cost and administration instead of relying on separate EINs as though they automatically separated every retirement qualification obligation. Preserve the group analysis when a new business is formed or acquired, and require an updated census before approving a separate owner-focused contribution. The timing of ownership changes should remain visible so the administrator can apply the correct employer facts to the relevant testing period. Give every administrator the same dated ownership matrix and identify any attribution conclusion still awaiting resolution. A plan illustration should state those unresolved assumptions rather than presenting a separate-company benefit as final before the employer group has been determined.
Sources & further reading
Consult the original guidance and its effective dates. These references support the educational discussion; their application depends on the specific facts.