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Who should I count as an employee for retirement plan eligibility?

To determine whether your business can offer a SIMPLE IRA and qualify for new benefits under the SECURE 2.0 Act, it’s important to count your employees correctly, especially if your business is part of a control group.

What is a Control Group?

A control group refers to two or more businesses that are closely related or under common control by the same individual, group of individuals, or entity. These rules are defined under IRC Sections 414(b) and 414(c) and are designed to prevent companies from bypassing retirement plan rules by spreading employees across multiple businesses.
 

Types of control groups:

1. Parent–Subsidiary Control Group
   A parent–subsidiary controlled group exists when there is a chain of related corporations connected through stock ownership with a common parent corporation.
   
   To meet this definition:

• One or more corporations must be connected by ownership to a common parent, and

• The parent corporation must own at least 80% of at least one subsidiary, and

• Each subsidiary (except the parent) must be at least 80% owned by one or more other corporations in the group

Example: If Corporation A owns 80% or more of Corporation B, and Corporation B owns 80% or more of Corporation C, they form a parent–subsidiary control group.
 

2. Brother–Sister Control Group
   
   A brother–sister controlled group exists when five or fewer common owners (who are individuals, trusts, or estates) have:

1. Controlling interest: They directly or indirectly own 80% or more of the stock or ownership of each business in the group.

2. Effective control: They own more than 50% of each business, with the same proportion of ownership across all businesses

This rule applies only when the same individuals have significant and proportionally similar control in all companies involved.

Which Employees Should You Include?

If your business is part of a control group, you must include:

• All employees across the entire control group, not just your single business entity

• Full-time, part-time, and seasonal employees

• Anyone who received at least $5,000 in compensation in the prior calendar year

• Employees from related companies you control (even if they’re not enrolled in a retirement plan)

Why This Matters for Retirement Plans

This is critical because to be eligible for a SIMPLE IRA, your combined total across the group must be 100 or fewer eligible employees. If the group exceeds that limit, your business does not qualify to offer a SIMPLE IRA, even if your individual entity has fewer employees.
 

Under SECURE 2.0, this count also affects access to enhanced features like:

•     Matching contributions based on student loan payments
•     Higher employer contribution limits.