We have a small employer with a 401k profit sharing plan that wants to include independent contractors - is there any
way the indep. contractors can adopt the
plan of the employer and therefore participate? Help.

Let's say independent contractor X works for company Y. Also, let's say and X and Y are not in the same controlled group or affiliated service group.

X cannot be a participant in Y's plan as an employee of Y (since X is not an employee of Y). However, X, as a business owner, can become a participating employer in the Y's 401(k) plan. Unfortunately, this means that Y's 401(k) plan becomes a multiple employer plan, which brings with it a lot of grief. There are probably other problems I haven't thought of.

However, why not have X, as a business owner, set up their own profit sharing plan (i.e. Keogh) or a SEP, covering himself. If Y would like to give the "401(k) match" that would otherwise go to X if a 401(k) plan could be set up, Y can simply pay X that dollar amount as as performance bonus or something like that. X can then contribute it into his profit sharing plan or SEP.

Thanks Richard. The multiemployer situation
sounds possible. The whole point of trying
to include the independent contractors is to
cut down on the cost of setting up and admin.
a plan so therefore, I don't think the ind.contracts. want to set up Keoughs. What kind of grief exactly will be involved in the multiemployer plan idea?

For a multiple employer plan:

- separate ADP/ACP tests for each "employer"
(Plus the normal union/nonunion disaggregation

- Forget about using a prototype document

- new Form 5500 filing requirements
Check the instructions
Will all of these new employers cause the plan to need to be audtited?

Question: Do the independent contractors have employees?
If not, why would they want to be part of a 401(k) plan?

ESOPWizard-

Would you please elaborate on your "forget about using prototype doc" comment. I recently got this question from a group of companies that might set up a multiemployer plan. I have differing opinions on the prototype issue. Why exactly would you recommend against? Inflexibility of prototype - or other things? I appreciate your advice.

Thanks ESOP Wizard.
No, the independent contractors do not have
employees. The reason they want to join the
401(k) is to save on bother and expense of establishing their own plans and admin. costs. Could the plan plan document utilize a regional volume submitter? And no it would not require an audit. Therefore, I think the multiemployer solution may work here. Any other possible problems?

Remember that we are discussing a multiPLE employer plan, not a multiemployer plan.

Last time I told a client that their plan was a multiemployer plan and that
they needed to amend the plan document, the response I got was that the document
couldn't accomodate multiple employer plans. My (admittedly limited) experience
has been that prototypes don't work for multiple employer plans. Volume submitter
documents should work. (Mine does.) Does the recordkeeper know how to deal with
a multiple employer plan?????

Wouldn't the independent contractors be better off with SEPs??? (I offer no opinion
as to whether they are really independent contractors.)

Rather than running the 10 (let's say) independent contractors through a single multiple-employer plan, it might simpler to set up 10 (let's say) single employer plans. Sometimes, brute force is a lot more effective, rather than worrying about the unique issues involving multiple employer plans (availability of prototype, filing requirements, etc.).

Also, setting up single employer plans allows the independent contractor to decide what is best for him/her; whether it is a SEP, 401(k), defined benefit, etc.

I agree with Richard. If they want to avoid administrative complexities, I contend that a SEP or Profit Sharing Plan(no 401(k)) for each independent contarctor will be easier to maintain than this multiple employer thing (just kidding) that everyone is talking about.

Well, you've done talked me out of trying to work out the multiple employer option. Guess the independent contractors will just
have to each go set up their own plan, probably SEPs, which they won't, cause they don't want to pay the yearly admin. fee. Pension admin. in the small business owner arena is rough. $$$, always the bucks.

I have very little sympathy for business owners (including independent contractors) who forgo the valuable tax deductions and tax deferrals because of fees.

If the independent contractors object to the fees for SEPs (let alone for money purchase or defined benefit plans), then let them pay their taxes. Washington needs it!

(Yes, I know we should be able to convince them of the value of tax deferral, but sometimes they need to learn the hard way or years later.)

<don't want to pay the yearly admin. fee. >>

What yearly admin fee??? (for a one person SEP)

So where do these guys put their money:

- brokerage wrap accounts?
- variable annuities?
- 12b-1 mutual funds?