Is this employer subject to PBGC?

[Santo Gold]

I have a software design firm (S-corp) consisting of 2 individuals that will adopt a DB plan for 2004 (cutting it close). Do you think they are subject to PBGC premiums? Would you consider this a professional service corporation?

Thanks

[Effen]

Do the owners need to be licensed or certified in any way to do what they do? If not, you are most likely subject to PBGC premiums.

If the individuals are married, you probably aren't subject to PBGC since it's treated like a on-life plan.

If they adopt the plan on 12/31/04, you have 90 days to file your 2004 PBGC premium.

Act Sec. 4021.©(2)

For purposes of this paragraph and for purposes of subsection (b)(13) --

(A)

the term "professional service employer" means any proprietorship, partnership, corporation, or other association or organization (i) owned or controlled by professional individuals or by executors or administrators of professional individuals, (ii) the principal business of which is the performance of professional services, and

(B)

the term "professional individuals" includes[,] but is not limited to, physicians, dentists, chiropractors, osteopaths, optometrists, other licensed practitioners of the healing arts, attorneys at law, public accountants, public engineers, architects, draftsmen, actuaries, psychologists, social or physical scientists, and performing artists.

(3)

In the case of a plan established and maintained by more than one professional service employer, the plan shall not be treated as a plan described in subsection (b)(13) if, at any time after the date of enactment of this Act the plan has more than 25 active participants.

[david rigby]

Some prior discussion:

http://benefitslink.com/boards/index.php?showtopic=5375

http://benefitslink.com/boards/index.php?showtopic=20783

http://benefitslink.com/boards/index.php?showtopic=21119

http://benefitslink.com/boards/index.php?showtopic=16599

[Blinky the 3-eyed Fish]

Are both people owners? A plan that covers only substantial owners, those owning more than 10% of the employer, is not covered. Effen, I don't think your marriage analysis is quite correct, but if they are married and one of the persons is a substantial owner, then 1563 attribution applies to exempt it from coverage.

As for it being a professional service organization, I doubt it. Read PBGC Opinion Letter 76-106. Although, you can always request a coverage determination from the PBGC, but be sure to file in the meantime.

[Santo Gold]

Unfortunately, only 1 of the 2 individuals is an owner (100%) and they are not married. The other employee is an HCE though.

I will have to check on whether they are liscenced to perform their services. I would have to believe that they have some certification to do what they do, but where is the line drawn for determining whether that satisifies the PBGC exemption?

Although software designers was not specifically mentioned in the list of occupational exceptions, I was hoping that since engineers was on the list of exemptions this could apply to them.

[david rigby]

The relevant section of PBGC opinon letter 76-106:

A professional service employer is any entity owned or controlled by professional individuals, as defined in §4021©(2)(B) of the Act, where both the entity and the professional individuals owning and controlling it are engaged in the performance of the same professional service. 

Section 4021©(2)(B) lists some but not all of those individuals who are considered to be "professional individuals." Physicians are included in this list and therefore the physician-secretary plan would be excluded from coverage under the termination insurance provisions of the Act. 

Insurance agents, however, are not included in the list. Consequently, our determination of whether such individuals, and others not listed, are"professional individuals" depends on an analysis of the services performed and the expertise required to perform them. 

In our view, a professional individual generally is one who provides services which require knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished from a general academic education and from an apprenticeship or from training in the performance of routine mental, manual or physical processes. The rendering of professional services generally requires the consistent exercise of discretion and judgment in its performance and would be predominantly intellectual in character. 

Although guidelines for defining professional service employers have not yet been developed by this Corporation, an insurance agent would not appear to fit within the foregoing description, and the insurance agent-secretary plan would not appear to be excluded from coverage under the plan termination insurance provisions of the Act.

[Blinky the 3-eyed Fish]

The obvious solution is for them to marry by the end of the year. Book a red-eye to Vegas.

Either that or get a coverage determination and if they come back that it's covered, then get married. I wouldn't want them to rush into it for the wrong reasons.

I am curious as to the result if you want to report back later. I know the PBGC will want this information:

Detailed description of the type of profession;

List the educational background needed and;

Licensing requirements, if needed.

While the services are professional, the lack of education requirements needed or licensing will hurt the cause.

[david rigby]

While the services are professional, the lack of education requirements needed or licensing will hurt the cause.

I agree. It seems an important point in determining what is a "professional". Might not be fair, but that is not the point.

[No Name]

Blinky,

Is the premium more expensive than the flight to Vegas? BTW, I just got back from there (already married) and don't know why, but loved it!