All members of a controlled group are treated as a single employer and the plan must satisfy the following compliance requirements for a plan to maintain its tax-qualified status.
Minimum Coverage- a qualified plan that covers both highly compensated and nonhighly compensated employees must benefit a minimum number of eligible nonhighly compensated employees. A highly compensated employee is one who earns in excess of $115,000 (2014, $120,000 for 2015) or is a 5% or greater owner. Basically, the acceptable coverage ratio is 70%. When dealing with a controlled group, satisfying this requirement could be a problem if the plan is not offered to all members of the controlled group and the other businesses do not maintain separate plans.
Nondiscrimination- the plan must demonstrate that contributions made on behalf of highly compensated employees are not discriminatory in comparison to the contributions made on behalf of nonhighly compensated employees based on IRS established perimeters. In a controlled group situation, having a significant number of employees receiving $0 contributions could be determined to be discriminatory.
Plan documentation- most employers that sponsor pension plans will establish their plan by adopting an IRS pre-approved prototype document. The provisions incorporated into these documents are very specific and any deviation could invalidate the document. Prototype documents can only be used by a single employer or members of the same controlled group of the sponsoring employer. One common problem that arises regarding prototype documents and controlled groups is where members of a controlled group are allowed to participate in the pension plan of the sponsoring employer but never formally adopted the plan. Another common problem is where a plan is originally established with members of a controlled group allowed to participate in the sponsoring employer’s plan, but due to a subsequent change in ownership, an entity is no longer a member of the controlled group but continues to participate in the plan. In this situation the plan becomes a "multiple employer" plan which is not supported by the prototype document. Therefore, requiring the plan to be restated on an acceptable document format, such as, a Volume Submitter or Individually Drafted Plan.