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Why Does Your TPA Need Personal & Ownership Details from Company Owners?

DWC 10/2/18


Our company sponsors a 401(k) plan for our employees.  The owners of the company have always been somewhat secretive in terms of sharing detailed information about themselves and their families.  The current environment of selling information for marketing use and identity theft has only intensified that.


Why does our TPA ask us each year for information about the owners of our company, their family members and other interests they might hold?  That all seems like personal information that shouldn’t be necessary to share.


We can certainly understand why someone would be reluctant to share certain personal information, especially when it comes to family members.  However, in this case, what might seem like a nosy request is actually a necessary one when it comes to plan compliance.

The nondiscrimination tests a plan must pass each year compare the benefits of highly compensated and key employees to those of their non-HCE and non-key counterparts.  Because company ownership is a primary component of determining who the HCEs and key employees are, it is critical that those doing the testing have access to ownership information.

In addition, having a complete picture of outside ownership interests is critical to determining whether other companies might need to be considered in the nondiscrimination tests.  For example, if the same small group of individuals have overlapping ownership across more than one company, it is possible that all employees of all commonly-owned companies must be counted in the annual tests even if certain of those workers are not part of the plan.

Further exacerbating the “nosy factor” is the fact that, in many circumstances, one person’s ownership in a company is attributed to certain family members.  This can be true even if those family members do not work for the company.  For example, a parent’s ownership is always attributed to his or her children under the age of 21.  That means if two parents each own their own companies, their children under age 21 are deemed to own 100% of both companies, requiring that both businesses be combined for purposes of testing the 401(k) plan.  This continues to be true if the parents get divorced or were never married in the first place.  There is attribution from parent to an adopted child but not to a step-child.

There is usually, but not always, attribution between spouses.  This is true even when those spouses are estranged but generally not if they are legally separated.  You can see how many of these nuances in the rules require sharing personal details that some may prefer to keep private.  Although it doesn’t change the need to provide the information, making sure that your plan service providers have confidentiality clauses in their service agreements can assuage some of the concern.

For more information on nondiscrimination testing and plan compliance, click here.

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Topics: Highly Compensated Employees, Question of the Week (QOTW), Controlled Groups, Plan Compliance, Key Employee, Ownership


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The views expressed in this blog are those of the authors and do not necessarily represent the views of any other person or organization. All content is provided for informational purposes only and is not intended to be tax or legal advice.