While the most intuitive starting point in establishing a retirement plan is deciding the specific type of plan to adopt, it’s not the only fundamental decision facing employers. Overlooking other factors impacting plan establishment could lead to costly missteps, such as plan disqualification. These factors often have ongoing ramifications and should be revisited on a regular basis.
To avoid common errors, employers should assess considerations including controlled or affiliated service group status of the employer, employee groups eligible for the plan, and service providers who are responsible for administering the plan and ensuring compliance with the Internal Revenue Code and Employee Retirement Income Security Act (ERISA).
Failing to apply the tax code’s controlled group and affiliated service group rules is a common oversight. Under these complex rules, related employers—both foreign and domestic—are treated as a single employer for certain plan purposes, even if such related employers don’t participate in the plan.
In general, an employee’s service with a controlled group member is counted for plan eligibility and...
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