Can s-corp partners in an LLC have their own SEP's

[Guest marievelem]

There are three partners in an LLC that is taxed as a partnership. Each partner established an S-corp which holds the partnership interest. Each s-corp would like to establish their own SEP. There are no other employees in any of the companies. The three partners are all key employees of the LLC. Is there any reason they should not have SEP's for their individual companies?

[Archimage]

IMHO, I don't think it is proper to do so since this is a controlled group. The 410(b) coverage rules do not apply to SEPs so you can't do the same things as you could with a qualified plan. I believe you have to include all related groups under a SEP arrangement.

[Gary Lesser]

Generally, the entity for which the services are performed (the employer) should establish the plan. All employees of all entities that are controlled, related, or affilliated must be treated as if employed by a single employer. Does the LLC have any employees or is everything contracted out to the S-Corps. Perhaps the LLC needs the plan if it pays compensation. Perhaps S-Corp(s) need a plan if they pay compensation. Perhaps all entities need to adopt the plan. Who's the employer?

Seems like the LLC needs the plan here. Amounts paid to the S-Corps are probably a scheme/shame and may not amount to compensation under either plan!

Hope this helps.

[QDROphile]

The suggestion of separate SEPs for incorporated members of a partnership or LLC is almost always misguided. The affiliated service group rules usually make all of the separate legal entities into a single employer.

[Gary Lesser]

Very well said QDROphile; but shdn't they all join in the adoption of the plan, preferably a single document?

While multiple documents would work for a SEP, different provisions could cause nightmares.

[QDROphile]

I was only thinking about the usual mistaken, but welcome, advice that everyone gets to set up their own SEPs and contribute as much as they want for themselves without regard for others.

If there will be a legitimate plan, all the participating entities need to adopt it. Because of the SEP coverage rules, probably all of the entities with employees will need to adopt it, the sooner the better. Use of one adoption document is convenient and efficient.