Owner wants separate plan from union

[Guest Bear]

Can an owner, who employs only union employees, and is himself a union member, set up a separate profit sharing plan for just himself?

I had heard that if you define the pay by excluding collectively bargained benefits, that this is possible?

[austin3515]

I know that for ADP testing, the union people must be tested separately (i.e., the ADP test must be passed when considering only the union HCE's and NHCE's). I'm not sure if there is a similar requirement for general nondiscrimination testing and design based safe harbors. If there is, because the owner is a union employee, he would need to be included in the testing and therefore, there would be much more limited benefit from starting a plan just for the owner.

[jquazza]

He can set a plan for just himself, that's not a problem. Also, you can exclude from the new plan union employees. The problem is he a member of the union, so if he excludes union employees, he would exclude himself as well. Second, Austin is correct, you have to separate union employees from non-union, not just from the ADP Test, but from your coverage and other nondiscrimination testing as well. Since the individual in question is a member of the union, separating the plans will not change anything, he will still have to aggregate this new plan with the other one, since I don't think the new plan could pass coverage on its own.

[david rigby]

Assuming you are talking about coverage, and I think you are, the reference to "union" is not quite correct. IRC 410(b)(3) lists those classifications that can be excluded from the coverage testing. This is the relevant language:

(3) Exclusion of certain employees

For purposes of this subsection, there shall be excluded from consideration -

  (A) employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers,...

(Emphasis added)

The emphasized phrase is often overlooked.

[Kirk Maldonado]

Treasury Regulation Section 1.410(b)-1©(1) provides as follows:

Under section 410(b)(2)(A) and this paragraph, there may be excluded from consideration employees not included in the plan who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if the Internal Revenue Service finds that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers. For purposes of determining whether such bargaining occurred, it is not material that such employees are not covered by another plan or that the plan was not considered in such bargaining.

The emphasized phrase is often overlooked.

[david rigby]

Touche. I'm guilty of overlooking that phrase.

But what does it mean? It seems to be in conflict with a plain reading of the statute. Alluded to here.

[KJohnson]

I have always understood that the owner would not be in the "bargaining unit" even if he or she was a union member. Thus I do not think that the owner could be a collectively bargained employee. If there is already a plan for the "union" employees, it would appear that the owner would have to be disaggregated in testing that plan (if it is a multiemployer plan there are certain rules regarding "bargaining unit alumni" still being treated as collectively bargained).

Thus, if he is not collectively bargained, he could set up a plan for himself. This assumes that all the rest of the employees are part of the bargaining unit and there are no bookeepers, secretaries etc. who are non-collectively bargained.

[Guest Bear]

Thanks everyone,

Agreed about the union clause. What if you include everyone, if the definition of pay includes something to the effect of excluding all collectively bargained wages, and only include non-union wages?

[SoCalActuary]

We use slightly different wording when dealing with Union card carrying entertainers.

We exclude employees whose "compensation and working conditions are governed by a collective bargaining agreement", knowing that pension plans are provided to the entertainment union employees.