Guest Robin A Spooner Posted October 29, 1998 Share Posted October 29, 1998 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. Link to comment Share on other sites More sharing options...
richard Posted October 30, 1998 Share Posted October 30, 1998 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. Link to comment Share on other sites More sharing options...
Guest Robin A Spooner Posted October 30, 1998 Share Posted October 30, 1998 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? Link to comment Share on other sites More sharing options...
Guest ESOPwizard Posted October 31, 1998 Share Posted October 31, 1998 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? Link to comment Share on other sites More sharing options...
Guest robin s vatalaro Posted November 3, 1998 Share Posted November 3, 1998 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. Link to comment Share on other sites More sharing options...
Guest Robin A Spooner Posted November 3, 1998 Share Posted November 3, 1998 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? Link to comment Share on other sites More sharing options...
Guest ESOPwizard Posted November 15, 1998 Share Posted November 15, 1998 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.) Link to comment Share on other sites More sharing options...
richard Posted November 17, 1998 Share Posted November 17, 1998 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. Link to comment Share on other sites More sharing options...
LCARUSI Posted November 17, 1998 Share Posted November 17, 1998 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. Link to comment Share on other sites More sharing options...
Guest Robin A Spooner Posted November 19, 1998 Share Posted November 19, 1998 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. Link to comment Share on other sites More sharing options...
richard Posted November 20, 1998 Share Posted November 20, 1998 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.) Link to comment Share on other sites More sharing options...
Guest ESOPwizard Posted November 21, 1998 Share Posted November 21, 1998 < 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? Link to comment Share on other sites More sharing options...
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