3811.01 / What special rules have been enacted to change the family attribution rules for nondiscrimination testing under the SECURE Act 2.0?

Under pre-SECURE 2.0 law, two spouses who each have ownership interest in separate businesses often ran into problems trying to pass nondiscrimination testing due to the family attribution rules. This often limited the flexibility of businesses offering retirement benefits solely due to state community property laws or the existence of minor children—and unintended consequence. SECURE 2.0 created two important exceptions that can now help closely held business owners offer retirement plans without running afoul of the IRS.

The government prohibits business owners from establishing retirement plans that primarily benefit highly compensated employees (HCEs) while excluding other less highly compensated individuals. To prevent businesses from using multiple entities to provide benefits primarily to HCEs and pass the anti-discrimination tests, the law treats certain related entities as a single entity for nondiscrimination testing purposes.

These “controlled group” rules evaluate the ownership structure of related entities. If enough common ownership exists, the entities are deemed to be a single business for retirement plan testing purposes. Similarly, when applying the law, individuals may be deemed to own business interests owned by certain family members—including spouses and minor children.