Spectrum Resource Center

Advice, Articles, Events, Insights, News, Newsletters, Opinions, Press Releases, Updates, and More from Spectrum.


Navigating Change: Important Updates to the Family Attribution Rule

As a plan sponsor, it is important to understand your organization’s ownership structure and controlled group status. This will help your qualified plan remain compliant with the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC). Neglecting a controlled group member or attribution of ownership can lead to a failed coverage test resulting in steep penalties or even plan disqualification.

What is a Controlled Group?

A controlled group of corporations often includes two or more companies typically connected through stock ownership by related persons. This controlled group is considered as one employer for the purposes of 401(k) coverage testing. The rules concerning the controlled group are in place so that a company does not bypass the nondiscrimination rules by dividing the companies into multiple entities.

Understanding the Family Attribution Rule

Attribution is the perception of treating a person as owning an interest in a business that is not actually owned by that person. Rather they are an owner because they are related to the owner of the stock (or profits or beneficial interests). An individual’s ownership can be attributed to his or her spouse, parents, children and grandparents.

Regarding 401(k) plan testing, attribution involves adding ownership interest of certain family members to the direct ownership of the individual. As an example, if a husband and wife each own 30% of their company, both spouses would be treated as owning 60% of that company (30% direct + 30% attributed).

The family attribution rules applicable to qualified plan testing generally fall under two sections of the Internal Revenue Code (IRC):

  • IRC Section 1563 – Identifies related companies that are part of a controlled group.
  • IRC Section 318 – Identifies related companies that are part of an affiliated service group.

SECURE 2.0 Updates the Family Attribution Rule

Under the IRC, certain related businesses must be aggregated when performing the coverage and nondiscrimination tests. The aggregation rules are generally based on the degree of common ownership of the businesses. Currently, in states where community property rules apply, each spouse would be considered to own the other spouse’s separate business and that business would be considered related.

Effective for plan years beginning in 2024, Section 315 of SECURE 2.0 updates two stock attribution rules.

  1. Community Property Rules - The first update addresses inequities where spouses with separate businesses reside in a community property state when compared to spouses who reside in separate property states. Therefore, community property laws will be disregarded when determining ownership.
  2. Minor Child - The second update modifies the attribution of stock between parents with a separate and unrelated business and their minor children in that it will not result in related employers. (Minor children are defined as individuals who have not attained the age of 21.)

Looking Ahead to 2024

These new rules are a long-awaited change especially for sole proprietor small businesses. Now the number of unintended related employers will be reduced. The American Retirement Association recognized this provision in a letter of support stating that it “corrects and modernizes the outdated and unfair family attribution rules to ensure women business owners are not penalized if they happen to have minor children or live in a community property state.”[1]

Plan Sponsors should work closely with their service providers and a qualified ERISA attorney to navigate these changes successfully. This could involve revisiting plan documents, communication strategies, and administrative procedures to align with the updated rules. Please contact your local Spectrum representative with any questions regarding your company’s ownership structure and how these important updates to the family attribution rule may impact your plan.


[1] Letter of Support for the Securing a Strong Retirement Act, American Retirement Association (May 3, 2021)

blog comments powered by Disqus


401k loan participant loan investing margin professional plan design practice defined benefit pension fees dol retirement readiness documents compliance spectrum open golf pano cancer event tournament philanthropy fiduciary rule tax cuts press release bi cloud technology azure plan intelligence docusign microsoft myretirement limits irs retirement plan contribution asset allocation investments newsletter cybersecurity plan termination merger acquisition gender retirement gap lifetime income investment returns women men erisa defined contribution financial wellness employees financial stress plan faq participant questions payroll finwell plan education fis impact award technology innovation education entreprenuers business accumulation startup wealth ira charity millennials 40th anniversary celebration soc-1 automation recordkeeping case study portal fiduciary tax deduction enrollment escalation video automatic qdia qualified default investment alternative roth participant outcomes uncashed checks distributions debt credit saving cash balance cbpp safe harbor nondiscrimination adp acp top-heavy plan sponsor 3(16) hardship withdrawal forfeiture forfeit vested vesting owner audit bond bundled unbundled psoy plan sponsor of the year abg mfa consulting employer connect reports student loans db/dc providers services guide erisawrap welfare benefit plan fundraiser document cancer reserach retirement confidence wrap spd wrap document plan document welfare benefits employee benefits healthcare wrap unvested vested account balance spectrumopen spd wrapspd spectrumplatform market volatility participant behavior socially responsible esg plan participation secureact SECURE legislation secureact2019 secureactof2019 secure act secure act of 2019 qaca participation restate restatement erisa bond fidelity bond bonding goals plan amendment election 2020 coronavirus covid-19 business continuity cares act cares covid19 relief retirement plan relief the cares act workforce demographics older employees covid the secure act engagement SECURE 2.0 Act Retirement Plan Legislation 401(k)

ERISA Workplace Retirement Plan Limits

The federal government annually publishes updated qualified retirement plan limits, which impact the contributions, benefit accruals, and compliance of ERISA covered qualified retirement plans. The below tables summarize the most significant changes in recent history.


Keep up on our evolving products, services, solutions, and technology through our Newsletters.

About Our Firm

Spectrum is a B2B consulting firm, which enables American Workers to plan and save towards a dignified financial future by designing, administering, and operating the ranges of retirement and financial plans for U.S. employers.

Get in touch

  • Address: 6402 19th Street, Tacoma, WA 98466, USA

  • Phone: +1 (253) 565-2100

  • Email: Contact Us Form