Who is eligible for a Solo K Plan...

[K-t-F]

I have a financial advisor who is of the understanding that a client can have a Solo K plan as long as the rank and file EEs are not eligible to participate (don't work the required 1000 hours). I told him that if he has EEs that are paid on a W-2 then they must be considered and therefore a solo plan can not be used.

Bottom line... if a Solo K can file an EZ then it can be a Solo K... Agree? if not, then it is a traditional 401K plan subject to ADP/ACP testing.

If someone can spell it out better I would appreciate it.. I think that simply someone confirming my statement will be enough. Thanks!

[K-t-F]

Ok.. here are the EZ requirements:

Who May File Form 5500-EZ

You may file Form 5500-EZ instead of Form 5500 if you meet

all of the following conditions:

1. The plan is a one-participant plan. This means either:

a. The plan only covers you (or you and your spouse) and

you (or you and your spouse) own the entire business. (The

business may be incorporated or unincorporated); or

b. The plan only covers one or more partners (or partner(s)

and spouse(s)) in a business partnership.

2. The plan meets the minimum coverage requirements of

section 410(b) without being combined with any other plan you

may have that covers other employees of your business. See

the instructions for line 14c for more information.

3. The plan does not provide benefits for anyone except

you, or you and your spouse, or one or more partners and their

spouses.

4. The plan does not cover a business that is a member of:

a. An affiliated service group,

b. A controlled group of corporations, or

c. A group of businesses under common control.

5. The plan does not cover individuals of a business that

uses leased employees.

The BOLD points may be the financial advisor's leg on which he is standing. If the part time ineligible EEs do not participate (do not meet the eligibility requirements and therefore do not enter the plan) can the employer then establish a Solo K?

[WDIK]

I do not believe that the tax code has established or refers to "Solo K" or "Individual 401(k)" plans. My understanding is that it is mostly a marketing tool. Perhaps there have been documents designed specifically for this approach. If so, I would be interested in seeing one.

That all being said, I think that any entity that is otherwise allowed to establish a 401(k) plan can have a "Solo K" if the owner is the only employee that satisfies eligiblity requirements. If the owner is the only participant, an EZ can be filed, but would not necessarily be required because of the $100,000 exeception.

[Appleby]

I do not believe that the tax code has established or refers to "Solo K" or "Individual 401(k)" plans. My understanding is that it is mostly a marketing tool. Perhaps there have been documents designed specifically for this approach. If so, I would be interested in seeing one.

That all being said, I think that any entity that is otherwise allowed to establish a 401(k) plan can have a "Solo K" if the owner is the only employee that satisfies eligiblity requirements. If the owner is the only participant, an EZ can be filed, but would not necessarily be required because of the $100,000 exeception.

Agreed---for this purpose, the business owner includes the spouse and children, therefore, if the business owner, his/her souse and children are eligible, the plan may be adopted for the business.

BTW, other names for the plan are Individual (k) Plan, Uni-K plan, One-man K plan etc. The brand name varies among providers.

[jquazza]

...and the restrictions vary by providers. Whatever your firm accepts as a "solo-K" is really up to your firm.

[K-t-F]

You are right and I know that a "SOLO" is simply a marketing term and in fact it is a full fledged qualified plan.

That said I have one question... To be eligible to file an EZ , can you have other EEs besides the owner partner spouse combinations? I believe the answer to be no. And if I am correct then the "Solo" plan that has EEs other than the employer who simply are not eligible to participate due to age and service requirements, that plan needs to file a 5500... correct? The < $100,000 "no need to file" exception is only for owner only plans that are eligible to file the EZ (not plans with no eligible EEs besides the owner)... correct?

[WDIK]

To be eligible to file an EZ , can you have other EEs besides the owner partner spouse combinations? I believe the answer to be no. And if I am correct then the "Solo" plan that has EEs other than the employer who simply are not eligible to participate due to age and service requirements, that plan needs to file a 5500... correct? The < $100,000 "no need to file" exception is only for owner only plans that are eligible to file the EZ (not plans with no eligible EEs besides the owner)... correct?

I disagree.

Line 14 on the EZ specifically asks for the total number of employees and whether or not the plan meets coverage requirements.

I think as long as the other employees are not eligible, an EZ may be filed. Whether you want to or not, in anticipation of rank and file employees actually becoming eligible is a different question.

[Lame Duck]

I was going to say something along the same lines but WDIK beat me to it.

[K-t-F]

huh.... well then.. I guess I may have been filing 5500s when I could have been filing EZs... not that I did anything wrong.. just a little more work.

[Earl]

regarding the various names.... a financial adviser called me early one morning a couple years ago wanting to know what a "eunuch plan" was.

Took me a couple of minutes to figure it out..... until I asked him to spell it.

Now I use that story to describe a simple 401(k) plan.

[g8r]

I presume "eunuch plan" was referring to uni-k plan, not a simple plan. The uni-k is another term for a solo k plan.

[Guest Mbrockway]

Don't forget that Keogh Plan's are only available to self-employed individuals. A self employed individual is an individual who has earned income from the employer who maintains the plan. These are usually sole proprietor's and partnerships.

[Appleby]

Don't forget that Keogh Plan's are only available to self-employed individuals.  A self employed individual is an individual who has earned income from the employer who maintains the plan.  These are usually sole proprietor's and partnerships.

Misty,

I don’t understand your comment. The Keogh is available to self-employed individuals (which includes sole proprietorships, partnerships and corporations) and their employees, whereas the Individual (k) Plan is available only to self-employed business owners, which includes sole proprietorships, partnerships and corporations…Am I missing something?

[Earl]

(I think g8r missed the joke)

[Lame Duck]

While the term "Keogh Plan" continues to be used, the plan as seperate and distinct disappeared with the passage of TEFRA in 1982. Prior to that time, self-employed individuals were not permitted to adopt the standard qualified plan (PS, MPP, DB) but were permitted to establish a special plan that had different contribution limits and coverage rules than corporate qualified plans. it has always been a plan for self-employed individuals only (sole proprietorships and partnerships) and has never been available to a corporate plan sponsor. I'm not positive about this, but I believe the term derivied from the last name of the congressman who introduced the legislation. They are also often referred to as HR-10 plans, as that was the bill number assigned.

[Appleby]

Very true…but some (including the IRS) continues to use the term… and now, the definition has morphed into a QP for self-employed individuals.

Personally, I don’t use the term and we never refer to it in our publications or documents … when a client tells me he/she has a Keogh, I try to get him/her to use the right term i.e. profit sharing, MPPP 401(k) etc…

[Guest Mbrockway]

Keogh plans are not covered under Title I of ERISA because these plans usually cover only a sole proprietor or partner of a partnership that sponsors the plan. Sole Proprietors, partners and sole shareholders of corporations, as well as the spouses of such individuals, are not employees for purposes of determining whether a plan is an employee benefit plan.

A Keogh plan, IMHO, is a Solo(k), Individual (k), Uni (k), etc. Since one participant plans are not considered employee benefit plans and are not covered under Title I of ERISA, they are not required to have a fidelity bond, file Schedule A or SSA, or distribute SARs or SPDs.

[WDIK]

I don't mean to be a nitpicker, but I agree with the nomenclature and definitions already put forth by Lame Duck and Appleby regarding "Keogh" and "Solo" plans.

[Appleby]

Misty,

I think I see where we disconnect.

I am using the term self-employed to mean an owner of any business (including a corporation) who is employed by his/her business.- of course, my use may be incorrect, since as you correctly stated , the definition is a sole proprietor or a partner in a partnership. Instead of saying self-employed individuals, I should have said self-employed individuals and owner-employees. Semantics? Maybe, maybe not ...For simplicity, maybe the term small business owner should be used, since it covers both

Your thinking is that the Individual (k)/Solo-K Plan can be adopted only by self-employed individuals ( as defined above), but that is not so. The K-plan can be adopted by self-employed individuals and owner-employees. Therefore, the owner-employee of a corporation may adopt a K-Plan, providing the only individuals eligible to participate in the plan are owner-employees…

[Appleby]

nomenclature

nomenclature??I learned a new word today...I think…now let’s see if I can use it in a sentence.

[Guest Mbrockway]

Appleby -

Yes, I think we are on the same page. Sorry for any confusion.

[Jim Chad]

The "solo-K" plan may refer to a prototype document that is so simple it has no eligibilty provisions. Some brokerage houses have a document of 4 or 5 pages. These would not work well if there were other w-2 employees you would like to keep out based on age or service.