S Corp owned by ESOP Cafeteria Plan

[Guest pfrpc]

If the S Corp is totally owned by an ESOP can all employees of the S Corp participate in the Cafeteria Plan - since essentially there are no 2% or more owners anymore?

[Ron Snyder]

An S corp can have a 125 plan anyway. The only limitation was that 2% shareholder-employees were not permitted to participate.

If you are referring to an S corp that has hundreds of employees with none of them being a 2% shareholder, they can all participate in such an arrangement.

I note that IRS has issued rulings about S corp ESOPs, including making such arrangements listed transactions in certain circumstances. See the article at http://www.irs.gov/retirement/article/0,,i...331,00.html/url.

[Guest ehs]

I have a similar question, in that most of the employees of the S-corp owned by the ESOP are 2% or MORE shareholders. Can they participate in the Section 125 Plan?

[A Shot in the Dark]

When you have employee ownership via an ESOP, it is the Empolyee Stock Ownership Trust that is the shareholder not the individual employees or more specifically the participants of the Plan. Therefore you have to look at the stock attribution rules.

I believe IRC code section 1563 or 318 discusses attribution issues. I believe there is no application regarding this issue and participation in a Section 125 is allowed by all.