5500, 2 owner C-Corp

[Earl]

50% / 50% 2 owner corp seems to have to file a 5500 (no EZ).

Is plan required to be covered by a Fidelity Bond. I always thought no for owner only plan.

So it would be a 5500, Schedule I indicating no Bond coverage and it would be correct?

And there is no where on the filing to indicate that coverage is not required?

Thanks

[Bill Presson]

50% / 50% 2 owner corp seems to have to file a 5500 (no EZ).

Is plan required to be covered by a Fidelity Bond. I always thought no for owner only plan.

So it would be a 5500, Schedule I indicating no Bond coverage and it would be correct?

And there is no where on the filing to indicate that coverage is not required?

Thanks

I'm 99% positive that the only exemption is for a single owner or husband/wife ownership. Two unmarried owners are required to have a bond.

[J Simmons]

I agree with Bill Presson.

[Lori Friedman]

Ditto. If a plan covers multiple partners and their spouses (no employees), it can file a Form 5500-EZ. The same isn't true, however, for multiple owners of a corporation; the plan can't use the short form.

[Earl]

the question is not about the availability of the EZ but about the requirement for a Fidelity Bond in a plan that has only owners of a corporation.

But regarding the availability of the EZ for a corp with mulitple owners see that last line of the following (which I found today):

SECTION 1103 of PPA see below;

. 1103. REPORTING SIMPLIFICATION.

(a) Simplified Annual Filing Requirement for Owners and Their Spouses-

(1) IN GENERAL- The Secretary of the Treasury shall modify the requirements for filing annual returns with respect to one-participant retirement plans to ensure that such plans with assets of $250,000 or less as of the close of the plan year need not file a return for that year.

(2) ONE-PARTICIPANT RETIREMENT PLAN DEFINED- For purposes of this subsection, the term 'one-participant retirement plan’ means a retirement plan with respect to which the following requirements are met:

(A) on the first day of the plan year--

(i) the plan covered only one individual (or the individual and the individual's spouse) and the individual owned 100 percent of the plan sponsor (whether or not incorporated), or

(ii) the plan covered only one or more partners (or partners and their spouses) in the plan sponsor;

(B) the plan meets the minimum coverage requirements of section 410(b) of the Internal Revenue Code of 1986 without being combined with any other plan of the business that covers the employees of the business;

© the plan does not provide benefits to anyone except the individual (and the individual's spouse) or the partners (and their spouses);

(D) the plan does not cover a business that is a member of an affiliated service group, a controlled group of corporations, or a group of businesses under common control; and

(E) the plan does not cover a business that uses the services of leased employees (within the meaning of section 414(n) of such Code).

For purposes of this paragraph, the term 'partner’ includes a 2-percent shareholder (as defined in section 1372(b) of such Code) of an S corporation.

[Medusa]

Earl,

FWIW, this from the EOB definition of Employee:

1.Effect on definition of employee benefit plan. A plan is not an employee benefit plan for ERISA purposes if it covers only one or more of the following individuals, even if any such individual would otherwise satisfy the definition of an employee: (1) a sole proprietor of an unincorporated trade or business, (2) a sole (i.e., 100%) shareholder of a corporation (if a corporation has two or more shareholders, each shareholder is an employee for ERISA purposes), (3) partners of a partnership (regardless of the number of partners), and (4) a spouse of any individual described in (1), (2) or (3). See DOL Reg. §2510.3-3©. Such a plan does not necessarily fail to be a qualified plan under the tax code (see A above), but the plan would not be subject to the enforcement provisions of Title I of ERISA.

[Guest Sieve]

I think Tripodi's definition of those not considered employees is inaccurate in the bolded material cited by Medusa, because the regs would not consider either husband or wife an employee if they owned 100% together. (See ERISA Regs 2510.3-3©(1).)

Bottom line, Earl, is that no bonding is required if there are no employees in the plan (because plans without employees are not subject to ERISA). And, certain individuals are not considered employees. So, if those not considered employees are the only ones in the plan, then the plan is not covered by ERISA, and thus ERISA bonding is not required.

[Medusa]

I think Tripodi's definition of those not considered employees is inaccurate in the bolded material cited by Medusa, because the regs would not consider either husband or wife an employee if they owned 100% together. (See ERISA Regs 2510.3-3©(1).)

Bottom line, Earl, is that no bonding is required if there are no employees in the plan (because plans without employees are not subject to ERISA). And, certain individuals are not considered employees. So, if those not considered employees are the only ones in the plan, then the plan is not covered by ERISA, and thus ERISA bonding is not required.

Sal? Inaccurate? How can this be!?

Larry, do you feel the answer is the same if the two owners are 99%/1%?

[Guest Sieve]

Yes. But you judge for yourself. Here's what the regs say:

• "For purposes of Title I of [ERISA], the term "employee benefit plan" shall not include any plan, fund or program . . . under which no employees are participants covered under the plan, as defined in paragraph (d) of this section [which describes when someone is considered to begin participating]." DOL Reg. Section 2510.3-3(b) (emphasis mine).
  
• "An individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse . . ." DOL Reg. Section 2510.3-3©(1) (emphasis mine).
  

Therefore, if H & W together own 100% of a corp.--whether 50-50, or 99-1, or 24.0094-75.9906--H & W are NOT employees with respect to that business (Reg. 2510.3-3©(1)). And, if there are no common law employees or others employed by this business, and the plan covers only H & W, then the plan covers no employees. Therefore, the plan is not an employee benefit plan because "no employees are participants covered under the plan", and the plan is not subject to ERISA (Reg. 2510.3-3(b)).

Seems pretty straight-forward to me. I don't know how Tripodi can refer to the same Reg. (2510.3-3©) and say, in the material quoted in a prior post, "if a corporation has two or more shareholders, each shareholder is an employee for ERISA purposes", when the reg. doesn't say that. Am I missing something?

(By the way, the filing of an EZ is different from what you asked, because that is based on the form's requirements. The plan I describe is not covered by ERISA, but still may be required to file the Form 5500-EZ. After all, the 5500 is required by the IRS, too, and ERISA applicability means nothing in that regard.)

[Medusa]

I don't see directly where Tripodi is getting that from - but I also don't see where you are reading "wholly owned by an individual" to mean "wholly owned by one or more individuals".

[GBurns]

Isn't there a difference between "an individual and his or her spouse" and two individuals (one or more) ? Two individuals do not necessarily mean that they have to be spouses.

[Guest Sieve]

Sorry, but I got way off-point here. The question was about 2 unrelated owners. Bonding clearly required unless they are husband & wife. You are absolutely right, George, that a corp owned by 2 or more individuals isn't necessarily the same as one owned by an individual and that individual's spouse. All I meant was that it's a little over-broad for Tripodi to say that a corp owned by 2 individuals means that each is an employee for ERISA purposes when, in fact, neither is an employee if the 2 individuals are married to each other. But that wasn't the question--which Bill Presson answered very early on--and I simply embarked on a side-trip. Thanks for pulling me back . . .

[Earl]

What seems interesting to me is

if 2 non-married individuals own a C-Corp, say 50 / 50:

1. They have to file a regular 5500 (not an EZ), and

2. They do not have to be covered by a Fidelity Bond (so answer the Q on 5500 "plan was not covered")

then

The DOL has no way to tell from the filing if that is a problem.

It makes the question a false indicator of non-compliance.

[GBurns]

I thought that in this particular case, it was:

If 2 non-married individuals own a C-Corp, say 50/50.

1. They have to file a regular 5500 (not an EZ), and

2. They have to be covered by a Fidelity Bons because there are 2 employees.

[Guest Sieve]

GBurns' last post is correct, Earl. I was wrong when I said earlier that there was no ERISA bonding requirement in your fact situation. There IS a bonding requirement if the ownership of the corp is 50-50 (or anything else) in the hands of 2 people who are not married to each other. (In my most recent post, I clarified: "Bonding clearly required unless they are husband & wife.")

[Guest KVAlbert]

Does this apply only to C Corps or are 2% or more shareholders in an S Corp exempt from the Bonding requirement?