Controlled Group -
Controlled Group
Categories:Defined Benefit Plan Issues   Defined Contribution Plan Issues   Glossary   Qualified Retirement Plan Issues  
Updated: 17/Jun/06 14:03:24 by Joe Friberg
Search for:
Advanced Search

Controlled Group

A group of businesses under common control based on their ownership, which must be treated as a single entity for purposes such as nondiscrimination testing, maximum benefit limits, and detectability of contributions.

Any group of business, whether Sole-Proprietorships, Partnerships, or Corporations, if it is determined to be a Controlled Group, has to be treated as a single business entity for the purpose of applying many aspects of pension law. The determination of Controlled Group status is made based solely on ownership percentages.

(Another aggregation of employers that must be considered is Affiliated Service Groups, which are based more on common business activity rather than just common ownership.)

There are two kinds of Controlled Groups: a Parent-Subsidiary group or a Brother-Sister group, defined as follows:

  • Parent-Subsidiary group: parent owns
    • Controlling Interest:
      ≥ 80% of stock of subsidiary
  • Brother-sister group: 5 or fewer people own
    • Controlling Interest:
      ≥ 80% of interest in each business
    • Majority Common Interest:
      > 50% of interest taking into account each individual's common ("identical"/minimum) ownership in each and every entity
  • Notes:
    • a person with 0% interest in one of the businesses is not considered
    • Ownership Attribution rules must be considered
    • for any set of 3 or more business entities, every possible combination of two or more entities must be tested separately

Example 1

Take three corporations with the ownership structure as shown:

Controlled Group Determination

Ownership Percentages Common
Corp. A Corp. B
Owner 1 40.00% 20.00% 20.00%
Owner 2 40.00% 20.00% 20.00%
Owner 3 20.00% 60.00% 20.00%
Total: 100.00% 100.00% 60.00%

Controlling Interest:
Is each column ≥ 80%?
Majority Interest:
Total > 50%?
Controlled Group? YES (all of above tests are true)

Based on these percentages, the two corporations form a Controlled Group.

Example 2

The following example shows two owners who own 100% of one employer and 80% of another.

Controlled Group Determination

Ownership Percentages Common
Employer A Employer B
Owner 1 80.00% 30.00% 30.00%
Owner 2 20.00% 50.00% 20.00%
Total: 100.00% 80.00% 50.00%

Controlling Interest:
Is each column ≥ 80%?
Majority Interest:
Total > 50%?
Controlled Group? NO (at least one of above tests is false)

In the common ownership test, they own exactly 50% interest, and so the businesses fail to form a Controlled Group.

Extended Examples

More Info

Here are some case studies in articles from an attorney specializing in ownership and control questions.

  12800 bytesControlled Group Determination.xlsControlled Group Determination Worksheet