one participant plan or not

[cpc0506]

We have a 401(k) plan that until 12/31/14 had employees and owners who were participants. During the 2014 plan year, all non-owner participants terminated and received distributions. So that as of 1/1/2015, the only employees/participants left are the owners (2 owners with 50% ownership each.) Client is an LLC taxed as a S-corp. We filed the a Form 5500-SF for the 2014 plan year. We are now working on the 2015 valuation work and Form 5500.

1. Can we file a one participant Form 5500-SF for 2015? In other words, is plan eligible for an Form 5500-EZ?

2. Plan also had one late deposit of deferral funds. Is a Form 5330 required for a one-participant plan? I know when you file a one-participant Form 5500-SF, you don't answer line 10a.

Thanks to all who respond.

[ETA Consulting LLC]

This is a good question. I do not think you'd be eligible for the Form 5500 EZ since the LLC elected to be treated as a Corporation. The exemption for covering only partners in a partnership does not seem to be the case in this instance.

Good Luck!

[cpc0506]

I have something nagging at my brain that there was a change with PPA of 2006 that an S-corp with greater than 5% owners could file as a one participant plan....

Does anyone else recall this?

[Lou S.]

I do not recall such nor do I see a change in the 5500 instruction on "Who can file".

I always though it was odd that a partnership than had only partners and spouses could file a 5500-EZ but a corp that covered only owners and their spouses could not file an EZ if there was more than one owner.

[cpc0506]

I knew I saw something. In the Form 5500 book by Janice Wegesin, she states that the definition of a one participant plan changed effective with 2009 plan years. Here is the following language from the book and the code she cites:

PPA 2006 modified the term partner to include an individual who owns more than 2% of an S-corporation. See IRS 1372b or PPA 2006 section 1103(a(E).

[Lou S.]

Good to know. Thanks for the cite.

[cpc0506]

So I might have answered my own question, but is there anyone out in the TPA world who is filing a one-participant Form 5500-SF for an LLC taxed as a S-corp where the only employees are the owners?

[Doghouse]

I must admit to some confusion over the fact that the reporting changes mandated by PPA 1103(a) do not seem to have been reflected in the 5500-EZ instructions, although the changes were supposed to have taken place in plan years beginning 1/1/2007 or after. As it currently stands, a partner-only plan can file an EZ even if it must be combined for coverage with another plan, or even if it is a member of a controlled or affiliated service group - a situation which would be precluded by the provisions of 1103(a).

What happened to this entire section with respect to implementation?

Dog

[ETA Consulting LLC]

The thing that gets me on this is that Section 1372(b) says that the term partner shall include those shareholders "for fringe benefit purposes". Are we comfortable using that narrow focus (Fringe Benefit) to imply that this covers qualified plans?

I'm just asking... I would love to hear some thoughts on this.

[ETA Consulting LLC]

I was hoping to receive additional comment on this. When reading IRS Publication 15-B, you can see where the IRS treating the 2% Shareholder as a Partner and would, therefore, not treat the fringe benefit as being given to an employee. One effect of this is that it would not be subject to employment taxes, but would be included on an information return (i.e. K-1); neither would it be considered a reduction of distributions to the shareholder.

Honestly, I do not work on cafeteria plans or any other fringe benefit plans; so this sounds like a foreign language to me. At any rate, the notion of a shareholder in an S-Corp being treated as a Partner in a Partnership does appear to be very limited in scope.

FWIW, I never saw the DOL coming in to enforce the rights of a 50% shareholder of an S-Corp under the auspices of protecting the employees. So, I share Lou. S's sentiment on that issue. It seems to defy logic. However, the plain language would seem to suggest that a plan comprised of only shareholders of a Corporation would be subject to ERISA, and therefore disallowed from using the Form 5500EZ.

I would love to hear thoughts on this.

Good Luck!

Good Luck!

[cpc0506]

I did a little more digging and found the following example on the IRS website:

https://www.irs.gov/retirement-plans/one-participant-401-k-plans

The example of a one participant plan lists a employee, Ben, who received 50,000 in w-2 wages from his S-corp.

Is this enough proof that an S-Corp with only owners can file a one-participant Form 5500-SF?

[Bird]

The example of a one participant plan lists a employee, Ben, who received 50,000 in w-2 wages from his S-corp.

Is this enough proof that an S-Corp with only owners can file a one-participant Form 5500-SF?

No. It says "his" S-corp. Presumably he is a 100% owner, for which there is no dispute about filing a one-participant SF.

[BG5150]

Where does it say that a sole owner of a C-Corp cannot file an EZ?

[Doghouse]

Is someone saying that he cannot?

[ETA Consulting LLC]

Is someone saying that he cannot?

Yes. I'm saying that I cannot see where a Form 5500EZ would be the appropriate form given the limitations on the rule requiring those S-Corp owners to be treated as Partners in a Partnership. Had the rule stated "for all tax purposes" or something less limited, then a blanket application would appear more reasonable. In this case, it appears that the rule was created with the limited intent of having a fringe benefit treated as "not" being given to an employee by the company. There's a tax impact, but not intended to change which plans are considered covered by ERISA.

Good Luck!