Form 5500 sole proprietor with PT employee

[thepensionmaven]

I should know the answer to this, but an accountant just approached me with a client who started a 401K in 2007, hired her sister as a PT employee (yes, under 1,000 hours) and ADP told her she did not need 5500s as the employee was excludable??

Obviously, if the employee is excludable, no 5500s until investment value greater than $250,000.

I believe excludables must be counted.

[Tom Poje]

well, the instructions for the EZ are

A one-participant plan means a retirement plan (that is, a defined benefit pension plan or a defined contribution

profit-sharing or money purchase pension plan), other than an Employee Stock Ownership Plan (ESOP), which:

1.  

   Covers only you (or you and your spouse) and you (or you and your spouse) own the entire business (which may be incorporated or unincorporated); or

    

   Covers only one or more partners (or partners and their spouses) in a business partnership; and

    

   Does not provide benefits for anyone except you (or you and your spouse) or one or more partners (or partners and their spouses).

you said the sister was part time employee, but you did not say whether they were eligible.  I assume no and they are not 'covered' by the plan, nor are they a 'participant', and therefore excludable.

otherwise, if they receive something and aren't a spouse or partner you wouldn't even be asking the question.

 

[Bird]

"Excludable" implies some discretion which may be leading to confusion.  If the sister is not a participant because she is excluded under the terms of the plan, then you have a one-participant plan covering only the owner and indeed do not have to file a 5500 until assets exceed $250K.

[cpc0506]

Note:  you need to be absolutely certain that she is not an eligible participant. We have seen many solo-k documents written with no age or service requirements (pitfalls of using advisors, and not TPAs, as document providers) and immediate entry.  Paying someone wages reported on a w-2 , under these provisions, would negate the ability to file a Form 5500-EZ and subject the plan to all other ERISA requirements.