Solo K - bonding requirements?

[Tinman]

Does the owner of a business who is a sponsor of his own Solo K plan need to be bonded? At one point, his son was also employed and participated in the plan, but the son has now terminated and taken a distribution of his account balance.

[WDIK]

Some of my thoughts on the matter:

1) To the best of my knowledge, a "Solo K" plan is merely a marketing term used for a 401(k) plan sold to business owners with no employees.

2) It doesn't seem very "solo" to me if the son was also participating, but certainly he should have after meeting the eligibility requirements.

3) As long as there is another participant, the plan must satisfy the bonding requirements. When there are no other participants, the plan is not required to do so.

[Lori Friedman]

Calling on all of you ERISA attorneys out there...

Bonding requirements apply to ERISA plans. A plan is subject to ERISA if it has at least one employee participant [Dept. of Labor Reg. Sec. 2510.3-3(b)]. Partners, sole shareholders, and sole proprietors (and their spouses) are not considered to be employees for the purposes of determining whether a plan is an ERISA plan [Dept of Labor Reg. Sec. 2510.3-3©]. No employees = no ERISA plan = no mandatory bond.

Thus, Tinman's client sponsored an ERISA plan when his son participated. Now that the son has terminated and withdrawn all of his plan assets, is there a non-ERISA plan? In other words, once a qualified plan has been subject to ERISA, can it later slip out from under ERISA's umbrella because of a change in demographics?

[Blinky the 3-eyed Fish]

In other words, once a qualified plan has been subject to ERISA, can it later slip out from under ERISA's umbrella because of a change in demographics?

Absolutely.

[Lori Friedman]

Blinky, should I really believe someone who swims around in a pool of nuclear power plant wastewater?

[Blinky the 3-eyed Fish]

I admit it. No.

[Guest mab]

Calling on all of you ERISA attorneys out there...

Bonding requirements apply to ERISA plans. A plan is subject to ERISA if it has at least one employee participant [Dept. of Labor Reg. Sec. 2510.3-3(b)]. Partners, sole shareholders, and sole proprietors (and their spouses) are not considered to be employees for the purposes of determining whether a plan is an ERISA plan [Dept of Labor Reg. Sec. 2510.3-3©]. No employees = no ERISA plan = no mandatory bond.

Thus, Tinman's client sponsored an ERISA plan when his son participated. Now that the son has terminated and withdrawn all of his plan assets, is there a non-ERISA plan? In other words, once a qualified plan has been subject to ERISA, can it later slip out from under ERISA's umbrella because of a change in demographics?

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In regard to the definition above and the Yates v. Herndon case, does anyone know if a plan is ERISA qualified if it has two non married shareholders as the participants. I see references to sole shareholders and spouses but nothing of two separate shareholders. Tx. in advance.

[jpod]

Under the DOL regulation, it's an ERISA governed plan. I don't know if there is a court decision out there that says something different, but based on the regulation you should expect that the DOL would be looking for a 5500 (rather than an EZ), bonding, and anything else required by Title I.