PBGC COVERAGE

[zimbo]

I have a client, Company X, that has a DB Plan covering the Mother who owns 99% of the stock, the Son who owns 1%, and a rank and file employee. At the end of 2005, the rank and file employee terminated and was fully paid out.

I know that PBGC regs do not attribute stock from Mother to Son so normally this plan would remain covered under PBGC in 2006. However, if the Mother and Son have other companies that form a controlled or affiliated group with the Company X though these other companies are not part of the DB Plan , and if the Son owns more than 10% of one of these other companies, would he be considered a "substantial owner" for purposes of PBGC coverage of Company X?

[SoCalActuary]

I don't see that you get the result you want.

We requested a waiver of coverage in a similar situation, and the PBGC refused to drop

coverage when the child had exactly 10% stock ownership. When we went to 10.1%, then

the PBGC granted the release.

[Blinky the 3-eyed Fish]

Zimbo said more than 10%, so I agree it is not covered.

On a side note regarding the attribution, it's under 1563, which is free-flowing attribution if the child is under 21. Since a substantial owner is defined as ownership in the last 5 years, if the child is under age 26, he would be a substantial owner.

[SoCalActuary]

3-I assumes the business was in practice 5 years ago. If no ownership 5 years ago, then no attribution.

Still, I question your ability to attribute that stock to a person no longer a minor child. That appears to be a new wrinkle on the attribution of stock. Any citations or examples where the IRS made that determination?

[Blinky the 3-eyed Fish]

No new wrinkle. Let me try again. We agree that under 1563 ownership is attributed to a child under 21, correct?

We agree that a substantial owner for PBGC purposes is defined as someone owning more than 10% of the stock in the last 5 years, correct?

Therefore, a child not yet 26 will be an owner in the last 5 years (assuming the business was there as you correctly point out) and be a substantial owner.

[zimbo]

No new wrinkle. Let me try again. We agree that under 1563 ownership is attributed to a child under 21, correct?

We agree that a substantial owner for PBGC purposes is defined as someone owning more than 10% of the stock in the last 5 years, correct?

Therefore, a child not yet 26 will be an owner in the last 5 years (assuming the business was there as you correctly point out) and be a substantial owner.

I agree with Blinky. The 5 year lookback seems to cover it.

Do we all agree that, as per my original question, if a son owns more than 50% of another business that does not sponsor the DB Plan but is related to the sponsor under 414, that he would be considered a substantial owner of the sponsor following the flow of 1563 ownership?

[Blinky the 3-eyed Fish]

I agreed previously that ownership in a related employer counts as ownership for the substantial owner purposes. However, your ownership percentages make me question whether this is a controlled group. Is it an ASG? If not, what are the ownership percentages?