Are Solo(k)s Subject to ERISA?

[Alf]

I can't get a clear answer - are one participant plans subject to ERISA?. Interested in plan asset regulations esp., but other ERISA provisions as well.

[Guest dscurtis]

All 401(k), not matter number of participants in the plan are subject to ERISA. One difference is that a Form 5500 does not need to be filed on these plans until the assets reach over $100,000 or the plan terminates. You do not need to run any annual testing on these types of plans. Just make sure that the only participants in the plan are husband/wife. Once the employer has any other employee that meets the eligibility it no longer qualifies for a solo 401(k) and must be amended to a regulare 401(k) plan that all eligible employees to participate in the plan. I have had a situtation when an investment advisor informed a client that since his company did not sponsor a 401(k) plan that he could open his own solo plan. Of course, since this person received w-2 comp from a company he could not open a solo 401(k). Make sure you ask several questions upfront.

[Belgarath]

Alf - I respectfully disagree with the prior post, or at least what it appears to be saying in the first sentence. I don't believe a 1 person 401(k) plan is subject to coverage under Title I of ERISA. See DOL regs under 2510.3-3©. The sole proprietor or sole shareholder (and spouse) are not "employees" for purposes of Title I coverage.

[Alf]

See what I mean???

[mbozek]

One participant plans are not subject to ERISA if the participant is the owner of the business because there are no common law employees. Plans with more than 100k in assets must file a 5500-EZ. However, if the only participant is a non owner common law employee of a business that is owned by a corporation or another person, the 1 participant plan is subject to all ERISA requirements including reporting and disclosure, the fiduciary rules, claims procedures, etc. Plans not subject to ERISA are subject to the parallel provisions of the IRC such as the prohibited transaction rules, non alienation of benefits, QDROs, etc.

[Belgarath]

Yes, I agree with mbozek. I was making a perhaps unwarranted assumption that the one-participant plan was a sole owner.

[wmyer]

Was this always a one-participant plan...did the plan ever have common law employees? Is the employer part of a control group? Answers to these questions may make a difference.