A owns 85% of company X, 10% of Company Y and 60% of Company Z. There are no controlled group issues. Companies A and B pay A director's fees in excess of $100,000 and no comp. Company C pays him a salary. For deferral purposes, how many 415 limits does A have? Although all three companies are unrelated, I believe there are two limits: Company Z and the combined director's fees from Companies X and Y. Regarding X and Y, A's director's fees are reported on a 1099. I believe he is essentially and independent contractor with being a director his business. Is my reasoning correct?

Something else just occurred to me. Do the employees of X have to be included in the coverage testing for A's director's plan?

For 415 purposes, the ownership threshhold drops to 50% so I think Company Z must be combined with the Directors fees when computing 415 limits. Because he is considered a 100% owner of his own self-employment (directors fees), I think employees of Company X must be aggregated with him for other purposes since he owns 80% of Company X and 100% of SE. I assume here that you mean to refer only to Companies X, Y and Z.

Don't the 415 limits only drop to 50% for parent/sub but brother/sister remains at 80%?

For 415 purposes, the 80% rule is reduced to 50% for only parent-child groups, brother-sister groups are not affected. See 415(h). We have a brother-sister situation here.

It seems that my principal concern is whether or not A's s/e plan for director's fees constitutes a controlled group with Company X. The company has a 401(k) plan. Can he maintain a s/e plan?

Parent-Subsidiary? Jarel may have a point. A is a sole proprietor for his directorship profession. If he was a corporation, we clearly would have a parent-subsidiary controlled group situation, and the 50% control test would apply. Can it be argued that we have the same situation when a sole proprietor has an ownership interest in a corporation? Just playing the devil's advocate here, but deserves some consideration.

With respect to Company X and SE, I don't think it matters whether we have a brother-sister or parent-sub controlled group. A owns 85% of Company X. My concern would be with coverage and nondiscrimination. Concerning the 415 issue, I stand corrected (thank you). The 50% won't apply in this case.

So, he has two 415 limits, one for his trade or business of director and one as an employee of Company. I agree with discrimination and coverage issues with Company X. Furtherore, under the leased owner rules of Reg 1.414(0)-1(B)(2) we may have problem with all three companies. If a plan covers a "leased owner" (ie A's plan for director's fees), that plan is treated as maintained by the recipient employer. This is getting very esoteric, but any comments?

Based on subsequent research, I believe this represents a leased owner situation and A cannot maintain a plan for his director's income.

Under the "leased owner" rules, does a SEP produce the same result as a qualified plan? I believe it would, but Prop. Reg. 414(o)-1 refers to "qualified plan." It doesn't seem reasonable that a leased owner can do with a SEP what he cannot do with a qualified plan. Thanks.