Our PCP Plan Document states that only "Eligible
Employees" can participate in the plan, and an Employee is defined as "any
person providing services to the Employer or Participating Employer as a common
law employee." Because S-Corp owners (i.e., 2% owners), sole proprietors,
and partners in a partnership are not common law employees, none of these
individuals can participate in the plan.
A 2% owner for the purposes of this exception is
someone who directly or indirectly owns (at any time during the year) more than
2% of the stock of an S-Corporation, or stock with more than 2% of the voting power.
Generally, spouses, children, grandchildren, and parents of S-Corp owners would also be
prohibited from participating based on the ownership attribution rules of the
Internal Revenue Code.
The information above should be used for general reference purposes only, as the IRS regulations related to S-Corp owners
and the ownership attribution rules are complex. Employers are strongly
encouraged to consult knowledgeable benefits counsel for individualized
guidance to ensure full compliance with the law.