Multiple Profit Sharing Plans for a Single Person: Problems?

[Guest reg_h2b]

Does anyone see any potential problems with the following scheme. In theory it allows multiple 415© contributions to multiple profit sharing plans:

1. Investment advisor (herein "IA") manages money for 5 separate non-affiliated clients.

2. IA can get an advisory fee from each client (as a sole proprietor) or become an employee of a given client (and thus draw a salary as a fee).

3. He decides to do the following:

a. Sole proprietor to client 1

b. Employee under clients 2-5.

4. Thus IA is a sole proprietor and an employee to 4 different employers (IA gets a different W-2 from each employer)

5. Each of the 4 employers sets up a profit sharing plan for only the IA. The IA is an HCE and each employer is an HCE. The employee and employer are the only employees of the company.

6. IA contributes up to 415© for each profit sharing plan.

So assuming the IA gets $160K salary from each employer he can contribute $160K in total ($40K x 4) on an annualized basis plus any sole proprietor contributions.

From the employer's perspective it has the added benefit of allowing the IA's fee to now be deductible (ee'r downside is now responsible for FICA etc.)

Does anyone see a problem with this scheme from either the IA's or the employer's perspective?

[QDROphile]

Wouldn't there be some securities regulatory issues if someone was functioning as an investment advisor as an employee of an employer that was not an investment advisor? And would the plan being advised have an "investment manger" within the definition of ERISA if the person is employed by the plan sponsor?

No comment as to other issues in the arrangement, other than the whole thing is stinky.

[Guest reg_h2b]

Q-

The point of the scheme really is to structure any "consultant's" work as an employee rather than as a sole proprietor in order to maximize 415© contributions.

Your's is a useful clarification.

So let's clarify the scenario by saying either:

A) For simplicty, take out the fact that he's an IA and just assume he's a non-fiduciary whose employed by 5 different companies.

or

b) 1. The investement advisor is EXEMPT from SEC and State registration for simplicity (less than 5 clients per state <$20M in assets under management).

and,

2. that the investment advisor does NOT receive any advisory fee/income from any PLAN. He only receives them from non-plan employer accounts.

(My memory of prohibited transactions is that they can only occur between A PLAN and a disqualified person).

Assume also, for simplicity, that the advisor manages only his employer non-plan assets. The IA, also leaves his PS plan in a mutual fund custodial arrangement.

Anyone got any problems with the scheme now? I ran this by one of our senior ERISA attorney and she seemed OK with the scheme.

Reg

[GBurns]

What legitimate business would the employer claim to be doing?

What would be the source of revenue?

What duities would the "employee" be providing that would substantiate an ordinary and necessary business expense such as the salary?

[Guest reg_h2b]

Assume the employer is say a doctor or a lawyer who has a corporation that has corporate assets that the investment advisor, the employee, manages for a fee. Assume these corporate assets are not qualified assets.

I'm not an expert in setting up a corporate structure but it seems to me that an expert could setup a corporation that employ's an investment advisor and that employer pays the IA a salary based on his money management. Would the employer need to be a IA also? Would this corporation have to be a investment company under SEC reg? All good questions. But...

Put it this way, if we assume a corporation could legally employee an investment advisor as an employ could this employee get multiple 415© SEP (or PS) contributions if this employee was employed by multiple employers? Has anyone heard of someone getting multiple 415© contributions in a given tax year?

Reg Jones