One man Plan

[Guest jfreeborn]

Does anyone know if there are any problems with an owner of a small business setting up a DB plan just for himself? If it is possible, would it have to be unqualified?

[Effen]

Does the business have any other employees?

[Guest jfreeborn]

Does the business have any other employees?

oops I forgot to mention that. Yes, it is a partnership. The controlling partner (definitely considered a HCE) wants to set up a DB plan for herself.

[Lou S.]

Short answer is no qualified 1 man DB Plan if you have more than 1 employee.

[Andy the Actuary]

(1) You could set up a single plan to cover both employees. (You would need to satisfy 401(a)(26)) They could have different benefit formulas since they are both HCEs. However, this may cause the document to have to be individually designed rather than an off-the-shelf prototype.

(2) Now, each can salt away up to $49,000 falling off a log backwards and an additional $5,500 in catch-up contributions match through a 401(k)/PS plan. In short, unless the DB plan offers the opportunity to defer substantially more, why do it?

(3) Important: A DB plan should be established only if the participants are committed to deferring substantial amounts for a lengthy period and investing conservatively. Else, the benefit/cost ratio doesn't make sense. Also, the DB plan -- as opposed to the PS plan -- offers limited funding flexibility.

(4) Suggest your client or prospective client discuss this planning with an EA since the questions you pose and the surrounding issues appear to be outside your scope of expertise.