Excludable v.s. Non Excludable for coverage testing

[RRB]

Hi,

My peers and I have had a discussion as to whether a person who sits on a board of directors for a corporation is considered an employee under the defenition of an employee with respect to a qualified retirment plan, e.g. 401(k) plan. Would such a director, if his/her only responsibility to the corporation was to serve on the board, not be considered an employee under a qualified plan and be considered excludable for coverage testing purposes similar to an independent contractor, or would such a director be considered an employee, and if excluded from participation, need to be considered as non excludable for coverage testing?

Thanks,

[ETA Consulting LLC]

Typically, they are paid director's fees; which is self-employment income with respect to the individual board member. Hence, they are not employees of the company.

Good Luck!

[K2retire]

My former employer sat on numerous corporate boards. In every case he was paid as an independent contractor with a 1099-MISC at the end of the year. A few of the companies continued paying him what they called a "retirement" benefit after he left the board, but those were also reported on a 1099-MISC that looked no different than the ones he got while he was still actively on the boards.

He had his own MPPP for the income from his "business" as a corporate director.

[jpod]

Not an employee; therefore, not even an "excludable."

[DMcGovern]

I just had a similar situation in that the 100% owner of an S-Corp also received a substantial Director's Fee from that company. The S-Corp sponsors both a 401(K) profit sharing plan and a cash balance plan. It is my understanding that he is a sole proprietor for being on the director's board. This creates a controlled group between the S-Corp and the Sole-Prop. Apparently I need to look at how the retirement plans define compensation and how the director's fees are reported.

In this case (because of the definition of compensation for the plans), if the director's fees are reported on a 1099, that income would not be used; if on a W-2, it could be used.

[RRB]

Thank you all for your replies. They confirm what we had been thinking.