PBGC Coverage Exemption for Substantial Owners

[Lori Foresz]

Hi,

If a plan covers a 100% owner of a corporation and his daughter, is the plan subject to PBGC coverage? If stock attribution rules apply, then the daughter would be treated as a substantial owner, but I can't find information on whether stock attribution rules apply for this purpose. Can anyone help?

Many thanks

[Mike Preston]

It has been a long time since I've looked this up, but if I remember correctly, a son or daughter over the age of majority as a plan participant subjects the plan to Title IV. Hopefully, somebody else has the cite handy.

[mwyatt]

Think you're on the right track here as far as kids in the Plan go. Think the only exemption would be if it was Substantial Owner and spouse.

[david rigby]

I guess we're assuming no other exemptions from ERISA section 4021(b) ?

[Blinky the 3-eyed Fish]

Here is the logic flow:

Plans that cover substantial owners are exempt from PBGC coverage. A substantial owner is a person that owns 10% or more (or more than 10% - I can't remember) of the sponsor, including attribution, within the last 5 years.

1563 attribution governs PBGC ownership determinations. Under 1563 in this situation, the child is not be attributed ownership at all if she is over 21.

So the plan becomes covered by the PBGC (assuming no other exemptions) when the daughter turns 26.

[jkdoll2]

Here is the logic flow:

Plans that cover substantial owners are exempt from PBGC coverage. A substantial owner is a person that owns 10% or more (or more than 10% - I can't remember) of the sponsor, including attribution, within the last 5 years.

1563 attribution governs PBGC ownership determinations. Under 1563 in this situation, the child is not be attributed ownership at all if she is over 21.

So the plan becomes covered by the PBGC (assuming no other exemptions) when the daughter turns 26.

Same question as this in 2004 - we dont know why there is an exemption to age 26 - see above. Why doesnt the plan have to become PBGC covered when the daughter is 21, why can they wait until she is 26? Where is the rule for that? Thanks

[Blinky the 3-eyed Fish]

A substantial owner by definition is anyone that has 10% ownership or more within the last 5 years. 1563 attribution attributes ownership from parents to the child until age 21. Once the child is past the age of 21, the attribution rules from the parents change (you can look up those details). So, until age 26, the child is treated as a substantial owner. Once they hit 26 though, without 10% or more of their own non-attributed ownership, they no longer are considered a substantial owner.

Make sense?

[Effen]

Good to see the blinking fish again! I was wondering if you were still swimming around out there somewhere.

[jkdoll2]

A substantial owner by definition is anyone that has 10% ownership or more within the last 5 years. 1563 attribution attributes ownership from parents to the child until age 21. Once the child is past the age of 21, the attribution rules from the parents change (you can look up those details). So, until age 26, the child is treated as a substantial owner. Once they hit 26 though, without 10% or more of their own non-attributed ownership, they no longer are considered a substantial owner.

Make sense?

Thanks for the answer - I get it now.