Adding retirees to an existing plan

[Guest Grant]

Have an odd situation where an owner has a non-profit charitable org. and a for-profit arm. Each has a DB plan. He has a handfull of people he is currently paying an annual pension to, out of his own pocket (he has lotsa money; they used to do work for him personally).

Question: Can he pay these people out of the "for-profit" pension plan, as long as he funds it? (He thought of just buying them an individual annuity, but was appalled at how expensive they seemed.) Could he, as an owner and employer, simply adopt the plan for the benefit of these former employees? What stands in the way of doing this? Please assume these are all the relevant facts for now.

Thanks!

[Guest Carol the Writer]

Personally, I would have a hard time advising him to do it. The employment relationship needs to be clarified. Were they, for example, domestic workers? Were they working for him in a justifiably "tax deductible" capacity while they were working for him? Presumably, these former workers services/duties assisted either one or the other of the two entities (that is, either the for-profit or the non-profit) in their "business" goals. If he can argue that these employees' services advanced his for-profit firm's enterprise, then he probably argue it.

Maybe you would want to see if there is a legal precedent in establishing a plan - or even extending coveraging under an existing plan - to "domestics". Even they need pensions, so I guess it would be arguable. (That's not arrogance on my part. The so-called human depreciation theory of pension justification applies to domestic workers as well as to the more typically thought-of employer/employee relationship.)

[Guest Grant]

Carol, thanks for your reply. I wasn't so concerned about establishing that these ee's had anything to do with either arm; in a controlled group situation, this could be viewed as the employer adopting an existing plan within the controlled group, for another set of employees. There are some domestics, I believe.

My main concern was adopting the plan for folks already in pay status. Is there anything preventing that? They have a service and pay history with this employer.

[Guest Carol the Writer]

Then my guess is that you don't have a problem. As long as he paid his employer portion of their FICA taxes (Social Security and Medicare) when they were working, this - I believe - is the definition of employee for potential plan purposes. The fact that they are now retired has nothing to do with it. Good luck!