5500EZ

[mjf06241972]

Two partners are only employees in a business and want to start 401k / psp.  In reading 5500EZ instructions they can file 5500EZ if the partners are the only employees?  Just wanted to confirm this.  Thanks.

[jpod]

Yes, subject to the limitation on filing the EZ if the partnership files a minimum number of information returns each year. 

[justanotheradmin]

It depends on the business entity type. 

From the 5500 EZ instructions

" 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 2. Covers only one or more partners (or partners and their spouses) in a business partnership; and 3. Does not provide benefits for anyone except you (or you and your spouse) or one or more partners (or partners and their spouses)."

I've always understood the instructions to mean that a corporation ( LLC, S-Corp, C-corp etc) could NOT file as a one-participant plan (and thus use Form 5500-EZ) unless it was a single owner, or single owner plus spouse, or two owners who happen to be spouses to each other. 
Multiple owners who aren't spouses don't seem to qualify. A general partnership with more than one partner WOULD meet the requirement for one-participant plan. 

[Below Ground]

Given that the two partners are the only employees, of the firm, they could file an EZ if there is no controlled group, affiliated service group and/or leased employees involving this firm.  I don't believe that the type of entity relevant for most firms, provided that the firm is an entity that can adopt a 401(k) plan.  I suggest that the use of the term "partner" or "partners" is referring to owners of the firm, in a "generic business partnership".  Note the use of the phrase "in a business partnership".  It does not say a Partnership.  To confirm this perspective, from "PPA SEC. 1103. REPORTING SIMPLIFICATION" we are told .... "for purposes of this paragraph, the term ‘‘partner’’ includes a 2-percent shareholder (as defined in section 1372(b) of such Code) of an S corporation."  (preceding text was explaining definition of "One-Participant Plan" for reporting.)  Perhaps when the firm is a C-Corp you can't use 5500-EZ, but I think this is "safe ground" when the entity is an LLC taxed as a Partnership or an S-Corp.  I must also say for "full disclosure" that I almost never use Form 5500-EZ since a 5500-SF can be filed for a "One Participant Plan"; thereby making it mimic the filing privacy (versus public disclosure) applied to a 5500-EZ vs 5500-SF.  So I would just file a 5500-SF and have no issue of concern.

[jpod]

The regulatory exemption from ERISA Title I - and the associated Title I filing requirements - applies only if the two individuals are partners in a partnership.  Notwithstanding the PPA provision unless there has been sub-regulatory guidance to the contrary from the DOL which I don't recall the Title I exemption is not available for a plan covering only shareholders of an S corp or only members of an LLC. 

[Bird]

15 hours ago, Below Ground said:

To confirm this perspective, from "PPA SEC. 1103. REPORTING SIMPLIFICATION" we are told .... "for purposes of this paragraph, the term ‘‘partner’’ includes a 2-percent shareholder (as defined in section 1372(b) of such Code) of an S corporation."  (preceding text was explaining definition of "One-Participant Plan" for reporting.)  Perhaps when the firm is a C-Corp you can't use 5500-EZ, but I think this is "safe ground" when the entity is an LLC taxed as a Partnership or an S-Corp.

Thanks for the reminder about this - I think I learned it here on the board a few years ago, and promptly forgot.  The instructions to the forms have not caught up.

[Below Ground]

You are welcome Bird.  Of course, I still always used Form SF to avoid any question.