flosfur Posted November 7, 2003 Posted November 7, 2003 After many years of a plan's existence, suddenly the spouse is put forward as an employee to be included in the plan with his/her DOH well in the past with no compensation history! The explanation given - well he/she always worked in the business but did not take any compensation in the past! Changing the plan's service requirement for eligibility to zero may not be a good option, as a DOH in the past may be a factor in maximizing the plan contribution. So who is an Employee for pension plan participation purposes?
AndyH Posted November 7, 2003 Posted November 7, 2003 Jim Holland has said repeatedly that you are not an employee if you do not have compensation.
Effen Posted November 7, 2003 Posted November 7, 2003 This seems like a risk vs. reward issue (plan administrators risk/reward). If they are telling you that the spouse was an employee and they have some basis to prove this (without pay stubs I'm not sure how they could) and they send you a letter stating that they forgot to report this person in the past, then I guess I would include them. I would also get the blessing of their ERISA attorney, in writing. What advantage does counting the past years offer? I don't think I would count the prior years as "years of participation" for 415 since they didn't accrue any benefit. How does the document define "employee"? Seems like a fairly big risk on the plan administrators part and I would definitely make sure it's their risk and not yours. The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
Blinky the 3-eyed Fish Posted November 7, 2003 Posted November 7, 2003 I know Jim Holland has said, "no compensation, not in the test", but I hadn't heard his comments that expressed that a person is not an employee if there is no compensation. It is such a common occurrence for a small business where both the husband and wife work for the company for one of the two to be paid all the compensation to lessen the SS taxes that I certainly would not understand the position that this person is not an employee. Now, the spouse suddenly showing up as an employee would be a cause for concern, but I have seen it happen with my clients. They just don't report the spouse because there is no compensation. So, IMHO if it is legitimate, that the spouse was working there, then she is an employee. "What's in the big salad?" "Big lettuce, big carrots, tomatoes like volleyballs."
AndyH Posted November 7, 2003 Posted November 7, 2003 Sorry, Blinky, but I gotcha. Shoulda stuck to 1 word. Q&A 38 ASPA 10/2002: Q. "Spouse works for husband's business for many years (over 1000 hours/year) without taking paycheck. In 2002 spouse begins taking paycheck. For plan purposes what is spouse's hire date? When she originally started working or when she started getting paid?" A. "When she started getting paid". And, from a few years back, my recollection of Holland's comment was: No compensation. Not an employee. Not in the test. Any test. That is from memory, without looking it up.
Blinky the 3-eyed Fish Posted November 7, 2003 Posted November 7, 2003 Good one. I still disagree with him on the employee aspect. "What's in the big salad?" "Big lettuce, big carrots, tomatoes like volleyballs."
Belgarath Posted November 7, 2003 Posted November 7, 2003 I agree with Blinky, Mr. Holland's opinion notwithstanding.
Lame Duck Posted November 7, 2003 Posted November 7, 2003 What if you reverse the situation and W is now receiving all the income from the business and H is receiving nothing? Does this mean H is no longer an employee for benefit accrual purposes? I have seen several cases where this format is followed in order to maximize the benefits for both spouses. The plan uses a high 3 average for benefit purposes and looks at all years of service for purposes of determining the high 3.
flosfur Posted November 9, 2003 Author Posted November 9, 2003 What advantage does counting the past years offer? I don't think I would count the prior years as "years of participation" for 415 since they didn't accrue any benefit. Hi 3 limit is based on Years of Service and not Years of Participation which is the case for $Max.
flosfur Posted November 9, 2003 Author Posted November 9, 2003 How does the document define "employee"? The plan has the typical language - "any person who is employed by the employer or affiliated employer, including leased employee under S414... unless such leased employee is covered by a plan described in S414(n)(5)....". I have not seen a plan language which defines employee by reference to a person being paid ....
Mike Preston Posted November 9, 2003 Posted November 9, 2003 As with other things of this ilk (gee, haven't used that word in a while) the ultimate determination is likely to be based on the facts. That notwithstanding, every time I have credited years of service to the spouse when no compensation has been paid, it has been in conjunction with tax counsel.
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