One-person "Solo-K" Plan - part time employee

[Tinman]

We currently use our normal DC document and it is silent as to the specific rules regarding a one-person 401(k) plan.

We have just discovered the owner's daughter works at the business on a part time basis but has never met the 1 year of service eligibility requirement.

Does this throw the plan out of "solo-k" status, causing a 5500 filing, testing, etc.? Or because she is part-time/seasonal and never works more than 1000 hours during the plan year, is that solo-k status retained?

Thanks!

[Belgarath]

"Solo-K" is purely a colloquial term, usually used for marketing purposes. But to answer your question, if only the sole owner has satisfied eligibility requirements, then it is a "one person" plan for purposes of the 5500 filing requirements.

[ETA Consulting LLC]

Just another piece of info not exactly pertaining to the question.

Should the daughter meet the 1000 hour requirement, then the Form 5500 being filed will NOT be a 5500EZ. In this case, the plan will become subject to Title I of ERISA. Conversely, should it be a spouse that works 1000 hours and enters the plan (and not a child of the owner), then the plan will continue to be treated as a one person plan.

It's just helpful to reiterate the requirements for filing the forms in order to alleviate any confusion.

Good Luck!

[RatherBeGolfing]

Belgarath is of course correct.

I have seen some financial institutions actually draft their "special solo-k document" to only allow for one participant plans. I always shake my head when I see it since you now add a document failure for what could have been addressed by simply not filing as a one participant plan.

[Tinman]

Thanks, all!

[ETA Consulting LLC]

Belgarath is of course correct.

I have seen some financial institutions actually draft their "special solo-k document" to only allow for one participant plans. I always shake my head when I see it since you now add a document failure for what could have been addressed by simply not filing as a one participant plan.

Hey! I have an Owners' (k) document :-) LOL The adoption agreement is only 6 pages (a plus), but you are constantly reminding the owner that as soon as you hire another employee AND they become eligible for the plan, then you're required to move to a full document. It IS another thing to monitor in order to prevent an automatic failure upon another employee becoming eligible. It's always good to have it amended to a full fledged document prior to the new employee becoming eligible.

BTW, I cannot speak for anyone else, but I enjoy how often we go beyond merely answering the question being asked and offer insight into every related issue as well :-) That has to be worth something.

Good Luck!

[Tinman]

Agreed! Great information provided - and appreciated!!!

[RatherBeGolfing]

Belgarath is of course correct.

I have seen some financial institutions actually draft their "special solo-k document" to only allow for one participant plans. I always shake my head when I see it since you now add a document failure for what could have been addressed by simply not filing as a one participant plan.

Hey! I have an Owners' (k) document :-) LOL The adoption agreement is only 6 pages (a plus), but you are constantly reminding the owner that as soon as you hire another employee AND they become eligible for the plan, then you're required to move to a full document. It IS another thing to monitor in order to prevent an automatic failure upon another employee becoming eligible. It's always good to have it amended to a full fledged document prior to the new employee becoming eligible.

BTW, I cannot speak for anyone else, but I enjoy how often we go beyond merely answering the question being asked and offer insight into every related issue as well :-) That has to be worth something.

Good Luck!

The conversations and tangents are what makes this forum so great. I can easily look something up in the EOB or "who is the Employer", but when I do I am focused on that one thing, so to have someone else bring up a related issue I hadn't considered yet is invaluable

As for the Owners (k) document, I wouldn't worry about your clients since you are a professional in this space and I know that you know what to look for and what to look out for. My concern are those people who are tossed a blank solo K adoption agreement from investment firm XYZ...

I see the appeal of a super short adoption agreement. We only do one participant plans when a provider we work with needs it as a favor, so in those cases I simply use a full volume submitter and move on.

[spiritrider]

One additional wrinkle. The minimum participation standards are maximums.

Make sure the plan document (I don't know why) or more likely the adoption agreement didn't reduce/eliminate these.

Mainstream providers handle this differently. Fidelity allows you to select this in their adoption agreement. Vanguard states; "There will be no age and service requirements under this Plan" in their adoption agreement.

[RatherBeGolfing]

One additional wrinkle. The minimum participation standards are maximums.

Make sure the plan document (I don't know why) or more likely the adoption agreement didn't reduce/eliminate these.

Mainstream providers handle this differently. Fidelity allows you to select this in their adoption agreement. Vanguard states; "There will be no age and service requirements under this Plan" in their adoption agreement.

Great point!

Perfect example of the related issues discussed above LOL