Owner-Employees Dodged a Bullet

Last update on: Oct 17 2017
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Owners of small corporations had their personal financial planning saved by a recent Supreme Court decision.

A federal appeals court had ruled that an owner of an incorporated small business was an employer and not an employee. Therefore, the owner was not eligible to participate in the pension plan. The case came up in a bankruptcy case. Creditors of the physician who owned the professional corporation wanted to include the doctor’s pension account it in the bankruptcy estate. The bankruptcy court and appeals court agreed, ruling that since an owner-employee could not participate as an employee in the company’s pension plan, his account was not protected in personal bankruptcy.

The Supreme Court disagreed, ruling that a working owner of a corporation may be a pension plan participant if the plan covers one or more employees other than the owner and his or her spouse. Still unanswered is whether an owner who is the only employee of a corporation may participate in the corporate pension plan. Yates v. Henson, 541 U.S. ____ (2004), No. 02-458.

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