Attribution of Ownership

attribution of ownership

Ownership is a key factor when designing and operating retirement savings programs. For the purposes of retirement plans, the ownership interest of one’s relative may be added, or attributed, to their own direct interest.

There are two definitions when it comes to attribution of ownership, each serving a different purpose.

Definition 1: Determination of Key Employees, Highly Compensated Employees (HCEs), and Affiliated Service Groups

When determining key employees, HCEs, and affiliated service groups, ownership is attributed from:

  • spouse to spouse
  • parent to child (regardless of age)
  • child to parent (regardless of age)
  • grandchild to grandparent (but not grandparent to grandchild)

Definition 2: Determination of Controlled Groups

When determining controlled groups, ownership is attributed from:

  • spouse to spouse (unless ‘spousal noninolvement exception’ applies*)
  • parent to child if
    • child is under 21, or
    • child owns more than 50%
  • child to parent if
    • child is under 21, or
    • parent owns more than 50%
  • grandparents to grandchildren if grandchild owns more than 50%
  • grandchildren to grandparents if grandparents own more than 50%

Spousal Noninvolvement Exception for Controlled Groups

*No spousal attribution exists under 1563(e) if the following conditions are met:

  • The spouse has no direct ownership in the entity
  • The spouse isn’t a director or employee and doesn’t participate in the management of the business
  • No more than 50% of the gross income of the business originates from passive income (i.e.,  derived from royalties, rents, dividends, interest,  and annuities).
  • Ownership interest isn’t subject to conditions that run in favor of the spouse or children under age 21.

Attribution of ownership is typically broken upon divorce or legal separation.  There is never double attribution of ownership, meaning the ownership attributed to one individual is not attributed again from that individual to another family member (though it could be attributed again through the organizational attribution rules).  Read here to learn how SECURE 2.0 changed the family attribution rules.

In addition to family attribution (discussed above), organizational attribution can occur between individuals, companies, trusts and estates, and can be further complicated by excluded stock/ownership interests, stock/ownership purchase options and other ownership details.

Where ownership is not straightforward, it is common for businesses to engage counsel specializing in ERISA to assist with attribution and related entity determinations for qualified retirement plan purposes. 

The content of this page is for general information only. While it is believed to be accurate and reliable as of the posting date, it may be subject to change. It is not intended to provide investment, tax, or legal advice. For advice regarding your specific circumstances, please seek services of an appropriate independent legal, tax, or investment professional.

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