PBGC coverage for DB plans covering spouses only

[Jakyasar]

Just curious about everyone's opinion, in what instances a db plan covering only spouses would be covered by PBGC?

Thank you.

[david rigby]

Please elaborate.

[C. B. Zeller]

Your question could be worded a little better. However what I think you meant to ask is, "Under what circumstances would a plan which covers only the substantial owner(s) of a business and their spouse(s) not be exempt from PBGC coverage under the substantial owners exemption?" This might shed some light on the question:

https://www.pbgc.gov/prac/other-guidance/insurance-coverage#substantial

Quote

Substantial owners plans

A private-sector qualified defined benefit plan is exempt from PBGC coverage if it is established and maintained exclusively for substantial owners of the plan sponsor (i.e., if all participants are substantial owners). 

A participant is a substantial owner if, at any time during the last 60 months, the participant:

• Owns the entire interest in an unincorporated trade or business, or
• In the case of a partnership, is a partner who owns, directly or indirectly, more than ten percent of either the capital interest or the profits interest in such partnership, or
• In the case of a corporation, owns directly or indirectly more than ten percent in value of either the voting stock of that corporation or all the stock of that corporation.

The constructive ownership rules, including spousal attribution rules, of IRC § 414(c) and § 1563(e) apply only in the case of a corporation.

If  spousal attribution only applies in the case of a corporation, then in the case of a partnership, the spouse must themselves directly or indirectly own more than 10% of the profits or capital interest (since spousal attribution doesn't apply, I am not sure what it would mean to "indirectly" own an interest in a partnership, I am thinking community property maybe). In the case of a sole proprietorship, the spouse could never be a substantial owner.

If the business is a professional service employer, then they could still be exempt even if the spouse is not considered a substantial owner.

[Jakyasar]

Sorry, was typing very late and not thinking clearly.

C.B. thank you for rewording it.

Based on my understanding and recollection, indirectly means having some kind option to buy agreement.

It is not a community property state. It is a sole-prop - not a professional service. So, are they covered by PBGC?