One Participant Plan

[Gary]

I am not at my office and do not have my resources with me.

With that said, I was posed with the question: Is a one participant plan considered an ERISA plan?

This question may have been asked in connection with a divorce situation, but nonetheless the question is specific.

My off the cuff response is that it is not an ERISA plan since it is not covered by the Title that covers employee benefits protection. I am not just referring to PBGC.

Are there any other responses out there to that question? Presumably a little more technical than what I said.

Thanks.

[Andy the Actuary]

What was the context of the question? What was it the inquirer wanted to know?

ERISA covered such areas as benefit accrual, participation, vesting, funding, reporting, etc. all of which the one-person plan is subject to. Much of the IRC wording parallels ERISA.

[Guest mjb]

I am not at my office and do not have my resources with me.

With that said, I was posed with the question: Is a one participant plan considered an ERISA plan?

This question may have been asked in connection with a divorce situation, but nonetheless the question is specific.

My off the cuff response is that it is not an ERISA plan since it is not covered by the Title that covers employee benefits protection. I am not just referring to PBGC.

Are there any other responses out there to that question? Presumably a little more technical than what I said.

Thanks.

It depends on who the particpant is. If the partcipant is a the owner of the business then the answer is no. If the participant is a common law employee who is not the owner the answer is yes.

[Gary]

Yes, the one participant is the owner.

It appears that a one participant plan (stated above) is not subject to Title I and Title IV of ERISA.

However, I am a little confused.

The plan is obviously subject to minimum funding, and QJSA, etc. so how is it exempt from Title I, given that Title I includes those things?

Thanks.

[SoCalActuary]

The plan is subject to IRC 401, which has many parallel laws to ERISA, but not all.

This is fundamental to the construction of ERISA and the dual jurisdiction of the DOL and IRS.

The dual legal status is shown in the wording in PPA, among many other laws affecting pensions.

For example, PPA'06 has sections 101 and 111, 102 and 112, 103 and 113, etc.

Once you read the law, you will understand better.

[Guest GMP]

While such a plan may not be subject to ERISA (SPD, fiduciary responsibility, etc.), it is subject to the Code; that's how it takes its deduction. Even though most of ERISA does not apply, the same provisions under the Code do, so there isn't a big difference in most areas of the operation of the plan.

[Gary]

So back to the loaded question "Is a one participant plan (where one participant is the owner) an ERISA plan?

WHile many sections of the COde apply, it appears that the answer is "no".

Make sense?

Thanks.

[ak2ary]

assuming the one participant is the owner, I agree

[AndyH]

Why the "owner" distinction? What if it were a two person plan, a Doctor and a receptionist. Not covered by PBGC. Would the answer be the same?

I'm just trying to parse the difference between PBGC coverage and ERISA coverage.

In this case, it would be an ERISA plan, just not one covered by Title IV, right?

[SoCalActuary]

Why the "owner" distinction? What if it were a two person plan, a Doctor and a receptionist. Not covered by PBGC. Would the answer be the same?

I'm just trying to parse the difference between PBGC coverage and ERISA coverage.

In this case, it would be an ERISA plan, just not one covered by Title IV, right?

You are correct. The one-person plan covering only owners is not Title I. The one-person plan covering non-owners is a Title I plan.

PBGC coverage for a one-person plan is possible when it covers a non-owner, but only if it is not a professional service organization, which is a different characteristic not part of the original question. One actuary recently told me of a non-profit organization that PBGC had forced to fully fund the benefit for its one-participant plan, who had been willing to waive out the underfunding on a plan termination.