possible controlled group scenario

[dmb]

A potential client (sole prop) is interested in setting up a DB plan. He has no employees. He receives his earned income from various partnerships that being partnerships have other partners. Would these other partners need to be considered to determine if there is a controlled group before setting up a plan?? Thanks.

[Archimage]

Yes, you will have to look at the ownership structure for all partners involved.

[dmb]

Thanks for the response, I have updated information: The Sole prop is a land developer. He is a parnter in a partnership where he is the only one earning income, the other partners are solely investors. I think I'm ok setting up a plan for his sole prop, but all opinions are appreciated. Thanks.

[Archimage]

I would agree that since he is the only partner actually performing services then no other partners would be considered in the plan.

[dmb]

Thanks again, but i now have more updated info. Apparently there is a 1% general partner that has earned income. Do you think that would change things. Thanks.

[Archimage]

Yes, he would be included. Is he an HCE? If so, you could write your document to exclude HCE with less than XX% ownership.

[SoCalActuary]

Sorry, that won't work in DB plan, since you have 2 or more who are not statutory exclusions, and 401a26 requires at least 2 participants.

[dmb]

Thanks again for the responses, the 1% partner is another partnership (with no employees), does that mean that all partners of teh 1% partnership need to be considered in the DB???

[SoCalActuary]

How many people have earned income from this partnership? How many partners combined produce a controlled group situation? Investment partners who receive passive income only don't count. Who's left?

[dmb]

I'm sorry about the sketchy info, but I'm getting it second hand. My prospective client is a partner in several partnerships owning between 5% and 30% of the partnerships. The only other partner with earned income is a partnership that is a 1% partner. This 1% partnership is owned 20% by my client who receives passive income from this partnership, 20% by second individual who also receives passive income and 60% by a corporation which has earned income. My client is not associated with this corporation in any way besides the common ownership in the 1% partnership. Does this help?? I know it helps confuse me even more. Thanks for any help.

[Archimage]

Sorry, I forgot you said you were setting up a DB plan. My comment earlier was in regards to a DC plan.