Ask the Experts April 12, 2016

(b)lines Ask the Experts – LLC Subsidiary Participation in 403(b)

“May the employees of the wholly owned LLC subsidiary of a 501(c)(3) corporation participate in the 501(c)(3) corporation’s 403(b) plan?”
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Michael A. Webb, vice president, Cammack Retirement Group, answers:       

This is a good question, as individuals often confuse entities that may be required to be aggregated for testing and other purposes with organizations that may sponsor the same type of plan. To get to the answer to this question, let’s review the types of organizations/individuals that may sponsor a 403(b) plan under the Code. They are, as follows:

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1)       501(c)(3) tax-exempt organizations,

2)       public education organizations (Internal Revenue Code Section 170(b)(1)(A)(ii)),

3)       ministers (defined by IRC Section 414(e)(5)(A)), and

4)       a state, including a political subdivision of a state, or any agency or instrumentality of a state for its public school employees (IRC Section 170(b)(1)(A)(ii)). (An Indian tribal government is treated as a state (IRC Section 7871(a)(6)(B)).

A Limited Liability Company, or LLC, is a private company that contains elements of both a partnership and a corporation. Though an LLC does not need to be organized as a for-profit entity, an LLC clearly does not fit into one of the four categories above of organizations that are eligible to sponsor a 403(b) plan. Thus, even though the entity in question is OWNED by a 501(c)(3), unless it is a 501(c)(3) itself, or is another type of organization listed above, it may not be able to participate in a 403(b) plan.

However, the IRS has issued a number Private Letter Rulings (PLRs), most recently PLR 201538020 and PLR 201539031, which appear to make an exception. A 501(c)(3) that owns the membership interest of a single-member LLC, where the single-member LLC has not elected to be recognized as a separate entity for federal tax purposes, can treat that entity a merely a branch or division of the 501(c)(3); the separate entity is disregarded for 403(b) eligibility purposes, and employees of the LLC may indeed participate in the 403(b) plan as if the LLC were a 501(c)(3) itself. However, PLRs only apply to the organizations who requested such a ruling, so you should consult with counsel well-versed in such matters before attempting to cover LLC employees in your 403(b) plan.

Having said that, even if it turns out that employees of an LLC are not eligible to participate in a 403(b) plan, the LLC and it’s 501(c)(3) owner may be considered to be a single employer for other purposes under the Code, such an for retirement plan nondiscrimination testing purposes.

Thank you for your question!

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.  

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Break from the Grind April 11, 2016

TRIVIAL PURSUITS: How did voters vote before our modern voting methods?

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How did voting methods evolve from colonial times until now?

In colonial times, in many places, election days were social occasions accompanied by much eating and drinking. When it came time to vote, those qualified— a free, adult, male resident of his county, a member of the predominant religious group, and one who owned land worth a certain amount of money—would simply gather together and signify their choices by voice or by standing up. As time went on, this form of public voting was gradually abandoned in favor of secret paper ballots. For a while, however, some colonies required published lists showing how each voter cast his ballot.

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For most of the 19th century, political parties controlled the printing and distribution of paper ballots, also known as party tickets. The paper ballots would be stuffed in slotted boxes, then counted by voting officials.

In the late 1800s and early 1900s, the electorate of the United States roughly doubled. Immigrants flocked to the nation’s cities, and women in the western territories received the right to vote. Election officials worried that such large numbers of votes would make voting fraud easier. They looked for a solution in the introduction of the Australian or blanket ballot and in new ballot counting machines. The Acme, an improvement upon the open-slot box, had a tabulator activated by a lever mechanism that releases the ballot into the box. The Acme was manufactured in Bridgewater, Connecticut, about 1880.

In the late 19th century, gear-and-lever voting machines were introduced, following contemporary trends in ballot design, notably the tabular layout of the blanket ballot, and private curtained booths were provided for voters.

From the late 1950s through the early 1970s, elections specialists looked to vote recording systems that could tap the processing power of computers, and punch cards were introduced. Later on, the punch cards had to be put into a card count reader.

Since the Help America Vote Act of 2002, more places are adopting the “optical scan” or “direct recording electronic” (DRE) touch screen computer systems for voting.

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