PBGC covered or not

[Jakyasar]

Hi

I own Company A 100%. No employees and I am not on payroll.

Company A owns Company B 100%.

Company B employs me and my spouse. We both get salaries.

Company B sets up a DB plan sponsored by Company B only.

Is the DB plan covered by PBGC?

None of the companies are professional entities.

Thank you

[Lou S.]

Not covered, assuming you are your wife are the only employees of B as you own 100% of B indirectly by virtue of your 100% ownership of A.

From PBGC website...
 

Quote

Substantial owners plans

A private-sector qualified defined benefit plan is exempt from PBGC coverage if it is established and maintained exclusively for substantial owners of the plan sponsor (i.e., if all participants are substantial owners). 

A participant is a substantial owner if, at any time during the last 60 months, the participant:

• Owns the entire interest in an unincorporated trade or business, or
• In the case of a partnership, is a partner who owns, directly or indirectly, more than ten percent of either the capital interest or the profits interest in such partnership, or
• In the case of a corporation, owns directly or indirectly more than ten percent in value of either the voting stock of that corporation or all the stock of that corporation.

The constructive ownership rules, including spousal attribution rules, of IRC § 414(c) and § 1563(e) apply only in the case of a corporation.

 

[david rigby]

You can also ask the PBGC:  https://www.pbgc.gov/sites/default/files/coverage-determination-instructions.pdf

https://www.pbgc.gov/sites/default/files/coverage-determination-form.pdf

 

[Mike Preston]

The entities are what? C-Corps? S-Corps? LLC taxed as what?  Mixture?  Specifics are relevant.  Haven't you asked this exact question before?

[Jakyasar]

Mike

It was similar and re-asking as I have more facts now.

I was told:

Company A is an S-Corp

Company B a disregarded entity.

David, I am aware the PBGC pilot program (in fact working on one for financial person now). Just wanted to check with the gurus out there first.

All your comments are much appreciated.

[Mike Preston]

Doesn't make sense. B can't simultaneously be disregarded and 100% owned by an LLC, can it?

[Jakyasar]

Can an S Corporation Be a Member of an LLC? | legalzoom.com

Hi Mike

Company A is an s-corp that owns company b which is the llc which I am told is a disregarded entity. This is all new to me as never seen it before.

Please look at the link provided (I hope it is ok to do).

[C. B. Zeller]

B might be a 1361(b)(3) qualified subchapter S subsidiary, aka Q-sub.

If that's the case I believe the plan would be PBGC exempt but I would still recommend going through the determination request to be sure. In my experience they get back to you pretty quickly.

[Luke Bailey]

Jakyasar, I am unaware of any PBGC guidance that addresses how to treat an LLC for purposes of ERISA section 4021(d), which defines "substantial owner." ERISA section 4021(d) deals only with sole proprietorships, partnerships, and corporations. If the PBGC treated the LLC as a disregarded entity, then the question becomes are you and your spouse, in the example, substantial owners of the S corp, and of course you would be because you own 100% and that ownership would be attributed to your spouse as well. If the PBGC did not treat the LLC as a disregarded entity, but rather as a partnership or corporation, then I think you would get the same result because Company A's ownership of Company B would be attributed to you under the rules of IRC sec. 1563(e), as referenced in ERISA sec. 4021(d).

The above makes intuitive sense, right, since in substance you (and by attribution your spouse) own 100% of the company you're working for?

[Mike Preston]

Intuitive sense? PBGC? Attribution? Surely you jest.

[Jakyasar]

Thank you all for your comments. I intend to bring this to PBGC's attention, will see how it goes.

[Luke Bailey]

14 hours ago, Mike Preston said:

Intuitive sense? PBGC? Attribution? Surely you jest.

Well, sometimes. Broken clock right twice a day, that sort of thing.

[Nate S]

On 3/9/2022 at 2:44 PM, Lou S. said:

Not covered, assuming you are your wife are the only employees of B as you own 100% of B indirectly by virtue of your 100% ownership of A.

From PBGC website...
 

 

This 100%.  Attribution of B is through A, at the same proportion since parent-child; A is a corporation, therefore PBGC says spousal attribution is triggered and presto, both are "substantial" owners.  Or is anyone trying to argue 

**insert Miley or Metallica, as preferred, to perform "Nothing Else Matters"**

[ktrombino]

Would an LLC, with 4 employees be covered by the PBGC if they are not a professional group but the employees consist of the owner, his spouse and their two grown sons over the age of 21?  Thanks for any help with this.

 

[VeryOldMan]

We have a plan sponsored by an insurance agent operating as a C corp. He has only 2 employees--himself as 100% majority owner and his son. We know that the plan must be covered by PBGC as there is no other known exemption.

We are terminating the Plan in 2022 and want to change the valuation date to the beginning of the plan year, but under rev proc 2017-56, the change can only be made if the plan is sufficient to cover all benefits, which it is not. So it has been proposed that the majority owner waive/forgo a portion of his benefit so that the valuation date can be changed. This would be done before the plan is terminated by plan amendment/resolution.

Can this be done? I think you can only do a benefit waiver if needed to make a PBGC case sufficient.

[ktrombino]

Thank you!