can 1099 employee treated as employee of a company and contribute salary deferral into the 401(k) Plan

[AdKu]

can 1099 employees treated as employees of a company and contribute salary deferral into the 401(k) Plan if the plan eligibility provisions looks like as shown below?

 

Plan Description: Prototype Non-standardized Profit Sharing Plan with CODA

I. ELIGIBILITY AND PARTICIPATION REQUIREMENTS
A. Eligible Employees (Plan Section 1.1.25)
Must choose either 1 or 2:

1. [x ] All Employees of an Employer are eligible to participate in the Plan.

2. [ ] All Employees of an Employer are eligible to participate in the Plan, except
Check each appropriate box (a-g) to specify excluded employee groups, if applicable.
a. [ ] Salaried Employees.
b. [ ] Hourly Paid Employees.
c. [ ] Any nondiscriminatory classification of Employees employed in or by one or more specified divisions, plants, locations,
job categories, or other identifiable groups of Employees as determined by the Board of Directors. Please specify:
(Note: Under Treasury Regulations, part-time and seasonal employment is not a nondiscriminatory classification. This
item should not be completed with a definition that by its terms defines an excluded classification as including NonHighly
Compensated Employees with the lowest amount of compensation and/or the shortest periods of service.)
d. [ ] Employees included in a bargaining unit covered by a collective bargaining agreement with the Employer in the
negotiation of which retirement benefits were the subject of good faith bargaining (unless the bargaining agreement
provides for participation in the Plan).
(For a Plan that includes union employees, specify whether less than all union employees are included. For example: If
the Plan is set-up for employees in Union X, but employees in Union Y are excluded, Union Y should be specified.)
e. [ ] Employees covered under any other tax-qualified retirement plan with respect to which the Employer is obligated to
contribute. Please specify:
(Specify the retirement plan, if applicable. For example: XYZ, Inc. Pension Plan.)
f. [ ] Leased Employees.
g. [ ] Employees not required to be taken into account for nondiscrimination testing purposes under Code §410(b)(6)(C) but
only during the Code §410(b)(6)(C) transition period.
(Note: If selected, in the event of a corporate acquisition, employees of the acquired company will be excluded from
participation in the Plan for a period not to exceed two years, as determined by the acquisition date and Plan Year.)
 

[ESOP Guy]

31 minutes ago, AdKu said:

can 1099 employees treated as employees of a company and contribute salary deferral into the 401(k) Plan if the plan eligibility provisions looks like as shown below?

 

I can't get past that sentence.  Outside of of insurance agents is there a person who is a 1099 "employee" that is an actual employee?  Exactly, what kind of 1099 are they getting and how are they employees if they are getting a 1099?  As a general rule they are not employees but independent contractors.  An employee gets a W-2 and an independent contractor gets a 1099. 

If this is the insurance agent fact pattern that is an important fact as they have special rules. 

[QDROphile]

You may have a question about whether or not the persons are properly classified.  Are they common law employees who should be getting a W-2 rather than a 1099?  If the employer is inclined to allow participation, it may be from a gut feeling that they are more like employees than contractors, and that gut feeling may be borne out of a relationship that IS an employment relationship (based on the applicable factors) rather than a contractor relationship.  Misclassification is also a problem if they are common law employees and not effectively excluded by plan terms.  See plan section 2(c).

[jsmith1985]

Would strongly suggest that you contact a HR professional who'd be able to assist you in classifying personnel correctly.

Wrongly classifying personnel can jeopardize many things including payroll/benefits, 401k plans etc.

[ESOP Guy]

14 hours ago, jsmith1985 said:

Would strongly suggest that you contact a HR professional who'd be able to assist you in classifying personnel correctly.

Wrongly classifying personnel can jeopardize many things including payroll/benefits, 401k plans etc.

Or ask Grubhub what can happen when lawyers think you have done it wrong!

https://techcrunch.com/2017/09/05/grubhub-versus-lawson-1099-trial/

[shERPA]

Short answer - No.  

Box 7  of 1099-Misc is labeled "non-employee compensation".  

IRC Section 401(a) [emphasis added]:

(a)Requirements for qualification A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section—

Independent contractor 1099 persons are not employees.  Only way for them to participate in the plan would be to become an adopting co-sponsor of the plan.

The classification/misclassification of the person as an independent contractor is a separate (but also essential) issue. 

[K2retire]

Bottom line: employees get W-2s. People who get 1099s are vendors.

[Rob S]

On 9/11/2017 at 2:49 PM, ESOP Guy said:

I can't get past that sentence.  Outside of of insurance agents is there a person who is a 1099 "employee" that is an actual employee?  Exactly, what kind of 1099 are they getting and how are they employees if they are getting a 1099?  As a general rule they are not employees but independent contractors.  An employee gets a W-2 and an independent contractor gets a 1099. 

If this is the insurance agent fact pattern that is an important fact as they have special rules. 

ESOP Guy - where can we find information on the Special Rules surrounding the Insurance Agent fact pattern and if the participant is an Insurance Agent 1099 EE, can we include his 1099 earnings for Nonelective contribution purposes? 

[Bill Presson]

2 hours ago, Rob S said:

ESOP Guy - where can we find information on the Special Rules surrounding the Insurance Agent fact pattern and if the participant is an Insurance Agent 1099 EE, can we include his 1099 earnings for Nonelective contribution purposes? 

You're looking for "statutory employee."

https://www.irs.gov/businesses/small-businesses-self-employed/statutory-employees

[ESOP Guy]

3 hours ago, Rob S said:

ESOP Guy - where can we find information on the Special Rules surrounding the Insurance Agent fact pattern and if the participant is an Insurance Agent 1099 EE, can we include his 1099 earnings for Nonelective contribution purposes? 

I might not be the most useful person.  I know enough to say "stop we need to do more research" when I encounter this. 

Bill got you a link to help you determine if you have a statutory employee. 

This talks about how they can have their own plan.

https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer&n=49

And this might not apply as it is talking about a person who gets a W-2 but uses a Sch C to report their income.  This whole grey area insurance agents occupy is very odd.  Like I said I know enough to know to ask more questions not answer them well.