Retirement Plans in Two Corporations Owned by Related Parties

There is still an overall limit of $49,000 under age 50 and $54,500 above that. The SEP doesn't enter into the deferred compensation ($16,500) so that's only in the 401(k). The profit-sharing component of the 401(k) and the SEP ($32,500) would be allocated between the two companies based on relative salary (considering the salary limitation for computing it).

If she takes less than the full deferred comp, then the computation gets more interesting. Even more so if one of the plans is a defined benefit plan. Make sure she consults with a really top notch pension guru.

Aren't there additional rules that prevent any arrangement of the two plans giving a greater benefit to one group of employees over another? I guess the idea there is to prevent managers from giving themselves better retirement plans than their employees? Any idea what those limits are?

messagenews: snipped-for-privacy@j21g2000yqh.googlegroups.com...

There is non-discrimination testing for retirement plans. If key employees (certain directors, certain 1% owners, 5% owners) or highly compensated employees (those who make more than 110k a year) contribute too much relative to the other employees, then the plan is discriminatory. There is a safe harbor rule, where if the employer contributes 2% or 3% of every employee's salary to a plan, and you don't have to worry about complicated discrimination rules.

I don't know why all employees just sign up for safe harbor plans and just reduce the employee's salary by the corresponding amount.

I do NOT have the citation handy and I can't recall it (my brain is pretty close to toast today!) but you are correct. I recall a provision that requires similar retirement plan treatment when there is 20% or more of shared ownership - meaning that if I own 100% of company A & 100% company B I can't have two separate retirement plans that provide separate retirement benefits, the plans have to have parity. I could have a plan for one company and NO PLAN for the other though.

Again, I'm shooting from the hip here and do NOT have any authority I can refer to at this time. Maybe after 04/20 (after my break AND if someone reminds me) I'll see if I can find that authority.

Gene E. Utterback, EA, RFC, ABA