Does anyone know of any reason that an LLC taxed as a partnership cannot sponsor both a MPPP and a p/s-401(k) plan. A partnership can, and I find nothing which says a LLC cannot. Another consultant is telling my client it cannot be done, but has no citation. Thanks.

There would appear to be no reason that the LLC cannot utilize the same rules as a partnership or corporation. The rules with regard to a proper sponsor are met regardless of LLC/LLP/S-Corp,etc status.

The same gentleman just hit me with another comment. He contends that partners in a partnership or managers/owners in a LLC cannot participant in the entity's retirement plan since they are not employees. He states that partners/owners are required to set up separate plans, ie partner A sets up plan for himself. In twenty years in the business, I've never heard of this. If he is correct, there are a lot of problem plans out there. Any comments?

A partnership or self-employed person may set up a plan which is essentially the same as a corporate plan. As we know in a non C-Corporation plan, the partners/owners are limited on certain benefits they may obtain (i.e. - loans, etc.)

He contends that if ABC Partnership sets up a qualified retirement plan, the partners cannot participate. I've never heard of this.

Beware of people who tell you how things must be handled, but don't give any cite for their position. If you get a cite, I would love to know about it...

He cites Rev Rullings 70-2 and 69-144. I'll fax copies if you supply your fax #. This is of course pre-ERISA.

Predating ERISA really isn't the problem. However, the fact that those rulings predate the (1984?) changes to the IRC to put corporate and noncorporate plans on the same footing *is* relevant. Section 404© now provides that self-employed individuals are employees. The reference in passing in Rev Ruling 69-144 to the fact that the partners could not participate is a reference to the old prior law.

Do you mean 401© that defines employee to include self-employed individuals? Note that both Rev Rulings are still in effect.

I don't see that either ruling is really on point to the issue at hand. That is, neither ruling was issued to decide this point, but rather to decide other issues. Revenue Ruling 70-2 had to deal with uncompensated employees. Ruling 69-144 had to deal with employees that were related to the partners.

While 69-144 mentions that the partners did not participate, that reference is *ONLY* a passing reference to the law as it existed at that time. The ruling was not deciding the issue of whether a partner could participate in the plan, but merely stated the fact that partners could not--just as a ruling mentioning a 70% marginal rate in passing wouldn't mean it is the same today.

Finally, at the very best those rulings could be read to indirectly require separate plans for partners--but to support that position, a reference needs to be found to a supporting provision in the Code for this position--and it simply doesn't exist. At the very best a Revenue Ruling is the position of the IRS--but if that position has no support, it simply doesn't stand.

Section 401© was amended during the 1980s to remove the old special restrictions on self-employed individuals in retirement plans. That fact, while not crucial to the issues decided in these rulings, was part of the environment that existed when they were issued.

"posted 05-05-99 16:23 ET (US)            
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He contends that if ABC Partnership sets up a qualified retirement plan,
the partners cannot participate. I've never heard of this.

I work for a "Big Five" accounting firm which prominently includes "LLP" in its name, and I can assure you that the partners participate in a 401(k) plan, a profit-sharing plan, and a DB plan.