2% owner participating in another 125 plan?

[Guest pmetallic]

I know of a greater than 2% owner of an S-corp who running his insurance premiums through an affiliated employer's 125 plan. He is a non-owner employee of that employer. I do not know if both employers are covered under the same

plan or if they each have a separate document. On the surface I am uneasy with this arrangement but cannot find any documentation that would dispute this strategy.

Does anyone know of issues that I should be concerned with?

[Guest PORTE]

What do you mean affiliated? Is he effectively an owner or not? These things go under the radar constantly? Are they doing the non-discrim testing? Every year? and passing?

I hope you don't lose sleep over this issue. Advise and go on. The liklihood of this ever being looked at is slim.

[Guest pmetallic]

There is common ownership in both employers. He is a 5% owner in one employer and is a common law employee with the other employer which is the reasoning they are using to allow him to participate in that employer's premium only arrangement. I don't know how they are doing testing-wise.

The conservative approach would be to not allow the pretax deferrals. But I am not sure I have a substantive basis for that advice.

[Guest b2kates]

look at 125(h) for controlled group definition related to cafeteria plan. If part of controlled group then 2% owner must be excluded.

may not be a controlled group for tax filing purposes.