Managing retirement plans across multiple related business entities can feel like trying to solve a puzzle without all the pieces. Internal Revenue Service (IRS) rules apply to a controlled or affiliated group of businesses as a single entity — but your data, reports, and testing results may live in separate silos.
These types of businesses face unique and often complex challenges when it comes to 401(k) plan compliance testing. The core issue is that the IRS treats all businesses in a controlled or affiliated service group as a single employer for plan purposes. This is to prevent business owners from creating separate entities to offer generous plans to Highly Compensated Employees (HCEs) while excluding or limiting benefits to Non-Highly Compensated Employees (NHCEs).
That's why Gusto Retirement Services, LLC (“Gusto Retirement”) created a dashboard that gives you one clear view of your entire group's compliance testing data. If you manage multiple 401(k) plans for your business group, this tool is for you.
Why multi-entity plan compliance can be critical — and complicated
Being in charge of retirement plan compliance for a multi-entity organization can be complex. Whether you manage plans for multiple franchise locations, several family businesses under one umbrella, or a handful of businesses operating under the same parent company, you're working with dozens of moving parts at any given time.
Managing plan compliance for a multi-entity organization can be a big administrative undertaking, not to mention a significant financial risk. Not only do you have to share employee and business data with the record keeper so that the right nondiscrimination testing is completed using accurate information, you also have to stay on top of individual plan results to avoid compliance failures and taking corrective action by the applicable deadline each plan year.
Even if each company sponsors its own 401(k) plan, the IRS could view your group as a single employer. All entities that are members of the Legally Related Group (LRG) must be tested together. Therefore, if some plans are set up differently or favor HCEs, the LRG may fail the nondiscrimination testing and corrections will be required for all entities and participants.
How Gusto Retirement simplifies multi-entity plan compliance
At Gusto Retirement, our goal is to simplify 401(k) plan management and compliance. That's why we built a brand new dashboard for Legally Related Groups (LRGs), also known as multi-business entities, controlled groups or affiliated service groups.
Our LRG Compliance Dashboard offers real-time visibility into your group-level compliance, so you can stay ahead of problems and close out the year smoothly.
Here are four benefits of using the LRG Compliance Dashboard for your plan compliance:
1. One dashboard = seamless administration
For 401(k) plan sponsors, annual compliance testing is a critical task. The IRS requires this testing to ensure a company's plan doesn't unfairly favor owners or HCEs. Gusto Retirement automates this process, helping you save time and avoid potential penalties and added costs.
With Gusto Retirement’s LRG Compliance Dashboard, you don't have to manage multiple logins or merge together spreadsheets to keep up with your various plans. Whether you manage two plans or twenty plans, you'll see your group's status — and each plan's real-time IRS nondiscrimination testing results — in one central location.
Even better: Gusto Retirement walks you through the results, explaining everything in plain language and letting you know exactly what your next steps should be.
If your plan includes a Safe Harbor feature or is a Starter 401(k) plan, it automatically satisfies most nondiscrimination testing.¹ However, this dashboard is still important for managing plan and participant limits and the company and employee information required for annual filings.
For LRGs, accurately determining which entities are being tested together can be a critical step to avoid serious, costly errors. Gusto Retirement displays this information on your dashboard so you can verify it at any time. If your business structure changes—for example, if you acquire or sell all or part of an entity—simply let us know, and we'll help keep your plan compliant.
2. Built-in error identification tools
It's easy to make errors or miss potential problems (like exceeding plan or participant limits) when you're overseeing multiple plans. But Gusto Retirement has built-in error identification tools designed to reduce your risk and help prevent administrative issues before they become a significant problem.
Our compliance software helps proactively identify common issues such as missed or late contributions, and flags potential compliance failures in real time, getting ahead of nondiscrimination testing. We'll give you clear instructions about how to fix any potential problems, so you can act before penalties must be paid or corrections are required. If corrections are required, we will work with you every step of the way so the correction is completed timely and follows IRS and/or Department of Labor standards for the applicable correction method.
3. Risk protection at no extra cost
Given the higher complexity, most LRGs are in our Enterprise package, which provides a dedicated relationship manager.² Despite the slightly higher base fee, your fees are billed as if you are one plan and the base fee is waived for all other entities in the LRG, no matter how many you have. In addition, there are no extra fees associated with compliance testing.3
4. Practical help with form filing and audit prep
Helping to confirm your 401(k) plan is compliant includes filing an annual IRS Form 5500 and, depending on your plan's size, preparing for a plan audit. Gusto Retirement handles the preparation and filing of the IRS Form 5500 for all plans, and we'll even sign it for most of our clients where we act as the 3(16) administrative fiduciary.⁴ Even better, you can track the status of these tasks right from your dashboard.
If a large plan filer audit is required, we'll let you know and provide a list of audit firms we commonly work with well before the IRS deadlines. Please note that each plan will be responsible for paying the audit firm.
At Gusto Retirement, we take a comprehensive approach to compliance. We not only manage all your 401(k) plans across various entities but also handle all your compliance tasks throughout the entire plan year. Our top priority is helping your plans meet all necessary deadlines and requirements while minimizing your effort, time, and cost. Our compliance dashboard provides full visibility into all compliance-related activities, always keeping you in the loop.
Ready to sign up for Gusto Retirement?
Managing multiple 401(k) plans across a legally related group takes valuable time and resources — but having the right tools can help save you both.
That's where Gusto Retirement comes in. Our LRG Compliance Dashboard displays every plan's compliance status and testing results for your LRG in one place, helping to give you more control over your plan management and avoiding costly compliance failures.
If you manage more than one plan for an LRG, learn more about your Gusto Retirement options or get started today.³
This content is for informational purposes only and is not intended to be taken as tax advice. Please contact a tax professional for further information.
FAQs
What is a Legally Related Group (LRG)?
A Legally Related Group consists of multiple business entities that the IRS treats as a single employer for 401(k) plan purposes. This includes controlled groups and affiliated service groups. All entities in an LRG must be tested together for nondiscrimination compliance.
Why is multi-entity 401(k) compliance complicated?
The IRS requires all related entities to be tested together to prevent business owners from creating separate entities that favor HCEs. This means managing data across multiple plans, ensuring consistent testing, and coordinating corrections across all entities if failures occur.
How does Gusto Retirement’s LRG Compliance Dashboard help?
The dashboard provides real-time visibility into group-level compliance, showing all plans' testing results in one central location. It includes built-in error identification, plain-language explanations of results, and clear instructions for any necessary corrections.
Does Gusto Retirement handle Form 5500 filing for multi-entity groups?
Yes, Gusto Retirement handles the preparation and filing of Form 5500 for all plans and will sign the form for clients where Gusto Retirement Services, LLC acts as the 3(16) administrative fiduciary. You can track the status of filings directly from your dashboard. While you will need to arrange and pay for a large plan audit, if necessary, Gusto Retirement will work with your chosen auditor to ensure they have all of the information they need.
Disclosures
¹ In general, Safe Harbor 401(k) plans automatically satisfy Top Heavy requirements. One exception is for plan years in which the employer makes discretionary contributions (such as profit sharing contributions) in addition to Safe Harbor contributions. Removing Safe Harbor contributions mid-year will also require that plans be subject to all compliance testing. All plans of related entities must be administered by Gusto Retirement in order for us to provide compliance testing.
² We require all plan sponsors transferring an existing 401(k) to Gusto Retirement to set up and maintain an Enterprise plan for at least one year. After one year, the plan will be eligible to switch to a different pricing plan. We also require all legally-related groups to be in Enterprise.
³ See here for more information regarding Gusto Retirement’s fees.
⁴ 3(16) fiduciary services are offered by Gusto Retirement Services, LLC and only available to clients who use the integration services available through Gusto's payroll services.
