Analysis of Application of Title I of ERISA for plans with QES and only one participant:
- In order for a plan to be subject to the requirements of Title I of ERISA, it has to cover employees.
- For Title I purposes, the DOL defines an employee based on the rules found in the regulations that define an employee benefit plan, DOL Reg. §2510.3-3
- DOL Reg. §2510.3-3 excludes the following from the definition of employee for the purposes of determining if a plan satisfies the definition of “employee benefit plan”:
- (1) An individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse, and
- (2) A partner in a partnership and his or her spouse shall not be deemed to be employees with respect to the partnership.
- The DOL does not distinguish between C corporations and S corporations. So, even though shareholders of S corporations are subject to pass-through income rules for tax code purposes, they are not treated like partners, and therefore, are employees for Title I purposes unless there is just a sole shareholder of the S corporation or there are just two shareholders who are married to each other.
- For a limited liability company (LLC), presumably the classification for tax purposes is used here. So, if the LLC is taxed as a partnership, then the members of the LLC are treated like partners.
- Therefore, individuals who are partial owners outside of a partnership (because there is QES held by the plan or because there are other direct owners) are not automatically excluded from the definition of employees for the purposes of DOL Reg. §2510.3-3.
- If the owner is a common law employee, we must then consider if the partial owner, who satisfies this employee definition, also meets the criteria to be considered a participant covered under the plan, according to DOL Reg. §2510.3-3
- An individual becomes a participant covered under an employee pension plan—
- In the case of a plan which provides for employee contributions or defines participation to include employees who have not yet retired, on the earlier of—
- The date on which the individual makes a contribution, whether voluntary or mandatory, or
- The date designated by the plan as the date on which the individual has satisfied the plan's age and service requirements for participation.
- If the partial owner satisfies the definition of employee and is considered a participant covered by the plan, the plan would be subject to Title I of ERISA and eligible to utilize the DFVC program for a late Form 5500 filing.
Citation:
Article ID: 169, Created: 8/22/2025 at 9:30 AM, Modified: 8/22/2025 at 9:30 AM