Joinder Agreement

[Cynchbeast]

We have the son who owns his business and has a new qualified retirement plan.  His mother does his bookkeeping and he wants to include her in plan.  She works on 1099 and they want to have her join plan as a sole proprietor adopting employer by means of a joinder agreement.  She has no EIN for her business, but files under her own SSN.

He is in import/export business, she does bookkeeping.  Is this allowable? 

[ESOP Guy]

If he child is over 21 and assuming he owns 100% of the business then isn't any business the mother owns in his controlled group and via versa? 

I am happy to be told I am wrong as I as a rule don't like doing controlled group rules from memory but I thought a parent and an age 21 child who is a majority owner of business was subject to the family attribution rules.  So she is allowed in his plan but I think she is an HCE and even if they don't put his in the plan she has to be factored into the whole thing due to family attribution. 

[Cynchbeast]

You lost me with all the mother, son, his plan, her plan.  I am not sure you understood or what you are saying, so let me restate it.

John owns company and sponsors retirement plan.  John's mother Mary does his bookkeeping but gets no W-2; she is paid 1099.  Can Mary as a sole-prop execute a joinder agreement and adopt John's plan? 

[ESOP Guy]

Sorry towards the end I used "her" when I should have used "his" it is edited to fix that.

 

If I am correct they are a Controlled Group then she can be part of the plan as she is effectively an employee of his company for plan purposes.  So if she did his books before 2017 she should have been part of the testing for all those year regardless if she adopted the plan or not.  But to me are they a Controlled Group is the most important question here.  It determines if this is a single employer plan if she adopts or a multiple employer plan for example.

 

For the record I am ignoring the question if she is a legit contractor vs employee that is someone else problem. 

[Mike Preston]

If I'm quoting you correctly, you are going to be spectacularly happy. Son who owns more than 50% of son's company is attributed stock of mother in son's business.  There is none. Same the other way.  Unless her sole prop is a management organization with respect to son's company (I doubt it), no control, no ASG. If her sole prop adopts plan you have a multiple employer plan.

[Cynchbeast]

Again, these answers seem a bit convoluted, so I will try to distill them to something that makes sense.

I think what you are all saying is that the there is no controlled group (no common ownership between 2 companies), so mother could adopt son's plan but  this would then constitute a multiple employer plan.

We have no experience with multiple employer plans.  The son has no employees, nor does the mother.  They just are two separate employers.  If we allow mother to adopt son's plan and then have a multiple employer plan, how would the administration of the plan differ from just a single employer plan?  Can someone steer me toward a good source?

[ESOP Guy]

At risk of asking about the obvious but is the mother really going to save more then $5-6K?  If not wouldn't it be easier to open up an IRA with automatic monthly deposit?

I guess if she is planning on putting lots more then that it still might be easier to open a SEP or Simple for just her. 

[jpod]

Why are you assuming that?  Maybe she is making $20,000 and it's all gravy because she doesn't need it to live so she wants to make the largest 401k contribution possible ($18,000 or maybe as much as $19,000 if she is 50+).  You can't do that with a SEP or SIMPLE.  She could open her own solo 401k but why bother if her son is willing to go down the MEP road.  Of course, I am making assumptions here too, including that the son's plan has a 401k feature.  

[ESOP Guy]

I did put most of my comment in the form of a question. 

[jpod]

Fair enough, but I like to assume that the person who posts the question has thought through the obvious issues first, at least where that person is some kind of retirement plan professional or an accountant.

[david rigby]

10 minutes ago, jpod said:

... I like to assume that the person who posts the question has thought through the obvious issues first ...

Has that been your experience reading posts here? 

[jpod]

Quote

 

Universally?  Of course not.  However, it could be insulting to the OP to bring up something that is completely obvious unless he or she has given us a clue that we need to point it out.  (And I am not suggesting at all that I think ESOP Guy was insulting the OP.) 

[Cynchbeast]

Calm down - I didn't mean to start an argument.  This is sort of an issue I inherited.  What I do know is that the mother has been paid by 1099 and I believe starting this year she will be on W-2.  The plan is a DB and the purpose of the joinder is to be able to recognize her past service while on 1099.