5500-SF last yr (as owner+employee), but now owner only w/assets < 250K - file EZ?

[TPApril]

Beginning of Plan Year had 2 participants, 1 owner, and 1 terminated employee.

Terminated employee took a full distribution during the year, so that..

End of the Year has owner only and can now file Form 5500-EZ, except..

Assets are under $250,000.

I think better off the plan files 5500-ez anyway but never encountered this situation before.

[Peter Gulia]

If the plan covered a nonowner employee or former employee during some part of the to-be-reported-on year, was the plan ERISA-governed (for at least that part of the year)?

ERISA § 3(1)-(3), 29 U.S.C. § 1002(1)-(3); 29 C.F.R. § 2510.3-3 https://www.ecfr.gov/current/title-29/section-2510.3-3

If so, wouldn’t the plan’s administrator continue reporting on Form 5500-SF, at least until reporting the first year that has no coverage of any nonowner (at any time during the to-be-reported-on year)?

[TPApril]

Good question, but it would seem that EZ's are private in part because they indicate an eoy balance wholly attributable to the owner, which would be the case here.

[Peter Gulia]

The Instructions for Form 5500-EZ describe its construct of a one-participant plan in the present tense.

The instructions do not specify an as-of date on which to measure whether a plan was or wasn’t (or is or isn’t) a one-participant plan.

That the instructions tell a filer to use a year-end amount to determine, if the administrator prefers, a distinct option about whether the plan’s (or all plans’) assets exceed $250,000 does not mean the instructions specify the year-end as the time to measure whether the plan is or was a one-participant plan.

Absent some further guidance, a plan’s administrator might be reluctant to report a plan as a one-participant plan if it was not a one-participant plan throughout the whole year.

This is not advice to anyone.

[Paul I]

The terminology we use sometimes invites interpretations that are logical but can be misleading.  

For instance, the title of the Form 5500-EZ is "Annual Return of A One-Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan" which starts out indicating it is for one participant, but then lists several instances when there will be more than one participant - owner's spouse, multiple owners and partners, or a foreign plan. The title doesn't mention that more-than-2% owners of an S-corp are treated as partners.

On a different topic, the instructions say the Form 5500-EZ must be filed on EFAST2 (unless the filer files less that 10 forms with the IRS) and then says "Information
filed on Form 5500-EZ is required to be made available to the public." It follows this statement with "However, the information for a one-participant plan or a foreign plan, whether filed electronically with EFAST2 or filed on paper, will not be published on the internet." It doesn't say where the information is available to the public, but does say that won't be on the internet.

While elsewhere, the IRS has expressed a concern that reporting a plan that has only one participant could reveal private information, the IRS does not prohibit it.  (It does prohibit reporting an individual's SSN as a plan number.)  For example, when a plan that files a 5500 or 5500-SF has only one remaining participant terminates, it still must file the form.

As @Peter Gulia noted, the instructions do not say what to do if there was a common law employee other than the owner-employees at the start, during or end of the plan year.  One place to consider looking to for guidance is - drum roll - the plan document. Some pre-approved plan documents designed specifically as an owners-only plan have a provision that says as soon as a common law employee other than an owner employee meets the entry requirements, all elective deferrals and employer contributions will cease immediately and the plan sponsor will need to a plan that will cover the common law employee.  This language support the concept that Form 5500-EZ reports only when the plan had no common law employees.  Should another plan be adopted that covers the common law employee, this newly adopted plan will file a Form-SF for the part of the plan year it was in existence.

[Lou S.]

We have always taken the position that if at any time during the plan year the plan covered common law employees we would file Form 5500 or SF.

We only file 5500-EZ if it covered only EZ eligible employees for the entire year.

That has been our interpretation and is not legal advice to anyone. 

As for filing of the Form 5500-EZ under $250K that would be a client decision but be ready for an IRS letter and explanation if you've been filing Form 5500-SF and suddenly have no filings in the next year.