Pension Benefit Guaranty Corporation 

89-10 

December 8, 1989 

REFERENCE: 

 [*1] 3(2) Definitions. Pension Plan Definitions. Pension Plan 

3(7) Definitions. Participant Definitions. Participant 

3(35) Definitions. Defined Benefit Plan Definitions. Defined Benefit Plan 

>4001(a)(15)> 

4001(b) Definitions. Employer and Controlled Group Definitions. Employer and Controlled Group 

4021 Plans Covered Plans Covered 

4021(a) Plans Covered. Requirements of Coverage Plans Covered. Requirements of Coverage 

4021(a)(1) Plans Covered. Tax Qualification in Practice Plans Covered. Tax Qualification in Practice 

4021(a)(2) Plans Covered. Tax Qualification by IRS Determination Plans Covered. Tax Qualification by IRS

Determination 

4021(b)(9) Plans Covered. Substantial Owner Plans Plans Covered. Substantial Owner Plans 

4021(b)(13) Plans Covered. Professional Service Employer Plans Plans Covered. Professional Service Employer

Plans 

>4022(b)(5)> 

>4041(a)(1)> 

>29 CFR 2610.2> 

OPINION: 

We write in response to your request for an opinion of the Pension Benefit Guaranty Corporation ("PBGC") that

a defined benefit pension plan your firm has established (the "Plan") will not be subject to Title IV of the Employee

Retirement Income Security Act of 1974 ("ERISA") (1) because [*2] a plan covering only self-employed persons is

not covered under Title IV; and/or (2) because a plan that never covers more than 25 active participants who are

"employees" as defined by Department of Labor regulation 29 C.F.R. § 2510.3-3(c) is excluded from Title IV coverage

by ERISA § 4021(b)(13). We have concluded that the Plan would not be excluded from Title IV coverage on either

basis. 

Your firm is a partnership engaged in the practice of law. The firm has approximately 90 partners, 82 of whom are

individuals and 8 of whom are professional corporations, each employing a single individual who is the sole shareholder

and employee of the corporation. Previously, the firm maintained approximately 34 separate defined benefit pension

plans (the "prior plans") each covering a single partner. None of the prior plans ever had a participant other than the

partner and they apparently had been excluded from coverage under Title IV pursuant to ERISA § 4021(b)(13),

referenced above. 

You merged at least 50 prior and new plans into the Plan, which is a single defined benefit pension plan covering

50 or more partners of the firm. Benefits are funded through a single trust which will be qualified [*3] under IRC §

401(a). 

The Plan Is Covered Under Title IV Pursuant to ERISA § 4021(a) 

ERISA § 4021(a) provides: 

Except as provided in subsection (b), this section applies to any plan . . . which, for a plan year --

(1) is an employee pension benefit plan (as defined in paragraph (2) of section 3 of [ERISA]) established or maintained --

(A) by an employer engaged in commerce or in any industry or activity affecting commerce, or 
(B) by any employee organization, or organization representing employees, engaged in commerce or in any industry or

activity affecting commerce, or 

(C) by both, 

which has, in practice, met the requirements of part I of subchapter D of chapter 1 of the Internal Revenue Code of 1954

. . .; or 

(2) is, or has been determined by the Secretary of the Treasury to be, a plan described in section 401(a) of the Internal

Revenue Code of 1954 . . . . 

You urge initially (1) that Title IV of ERISA covers only "employee pension benefit plans" as that term is defined

in ERISA § 3(2) (i.e., in Title I), (2) that the Department of Labor has in 29 C.F.R. § 2510.3-3(b), (c) defined

"employee pension benefit plan" to include only plans containing at [*4] least one participant who is not a partner in

the enterprise maintaining the plan (hereinafter a "common law employee"), (3) that the Department of Labor's definition

of "employee pension benefit plan" is controlling for Title IV purposes, and (4) that because the Plan does not include

any common law employees it is not covered by the Department of Labor's definition and, therefore, is not described in

ERISA § 4021(a). We do not agree with your initial premise. 

ERISA § 4021(a)(1) extends Title IV coverage to a plan which is an employee pension benefit plan as defined in

ERISA § 3(2) which meets, in practice, the applicable Internal Revenue Code ("IRC" or "Code") requirements specified

in § 4021(a)(1). However, ERISA § 4021(a)(2) also extends Title IV coverage to any plan which "is, or has been

determined by the Secretary of the Treasury to be, a plan described in [IRC § 401(a)] . . .," regardless of whether such

plan is an "employee benefit pension plan" within the meaning of ERISA § 3(2). You urge that "the grammatical

structure of ERISA § 4021 is susceptible to more than one interpretation." We disagree. The requirements for coverage

under ERISA § 4021(a)(1) and ERISA § [*5] 4021(a)(2) are clearly alternative tests for coverage under Title IV. 

Because the statute is clear on its face, resort to legislative history is unnecessary. However, the history of ERISA

§ 4021(a) strongly supports our interpretation. The version of the statute adopted by the Senate contained only the tax

qualification requirement set forth in ERISA § 4021(a)(2). H.R. 2, 93d Cong., 2d Sess. Sec. 421 (1974), with

amendments as passed by Senate, Legislative History of the Employee Retirement Income Security Act of 1974 ("Leg.

Hist."), at 3700 (1976). The version adopted by the House included requirements comparable to those set forth in ERISA

§ 4021(a)(1), with the exception of the "in practice" tax qualification requirement inserted by the Conference Committee.

H.R. 2, 93d Cong., 2d Sess. Sec. 301 and 409 (1974), as passed by House, Leg. Hist. at 3995-96, 4022-23. Rather than

make the attempt at integrating the two provisions that your analysis assumes, the Conference Committee simply

incorporated both definitions into the final version of ERISA. (As noted above, the Conference Committee added the

"in practice" tax qualification requirement to the House coverage criteria.) [*6] Thus, to the extent that any analysis

of legislative history is necessary, we conclude that the Committee intended that any plan covered under either definition

should benefit from the PBGC's guarantee. 

In support of your interpretation you cite the statement in H.R. Conference Report No. 93-1280 that "[Title IV]

requires mandatory coverage of employee pension benefit plans that either meet [the other requirements of § 4021(a)(1)]

or . . . are qualified under the Internal Revenue Code." H.R. Conf. Rep. No. 93-1280, 93rd Cong., 2d Sess. (1974), Leg.

Hist. at 4634 (emphasis yours). Aside from the fact that such a statement cannot displace the specific statutory language

contained in ERISA § 4021(a)(2), a separate sentence from the legislative history strongly suggests that Congress

intended all tax-qualified pension plans to be covered under § 4021(a). "A plan once determined to be a qualified plan

by the Internal Revenue Service is a covered plan even if the determination is subsequently deemed erroneous." Leg.

Hist. at 4634. 

You further argue that the purposes of Title IV are fully served if only plans including "common law employees"

are deemed to be covered. The statute [*7] suggests otherwise. ERISA § 4021(b)(9) sets forth an exclusion of plans

which are "established and maintained exclusively for 'substantial owners' as defined in section 4022(b)(6) [now

4022(b)(5)]." However, ERISA § 4022(b)(5) defines a substantial owner as 

an individual who --

. . . 
(ii) in the case of a partnership, is a partner who owns, directly or indirectly, more than 10 percent of either the capital

interest or the profits interests in such partnership, or 

(iii) in the case of a corporation, owns, directly or indirectly, more than 10 percent in value of either the voting stock of

that corporation or all the stock of that corporation. 

To interpret ERISA § 4021(a) as excluding all plans which consist entirely of partners would be to expand this exclusion

beyond Congress' chosen requirement of a minimum 10 percent ownership. 

You also urge that PBGC should not cover plans containing only partners because the Department of Labor's

exclusion of these plans from Title I coverage, and thereby from the funding and fiduciary standards set out in that Title,

creates an additional financial risk for PBGC. However, the scope of the insurance program established under Title [*8]

IV is set forth in ERISA § 4021, which also delineates the exceptions to that coverage. That a plan may be excluded

from coverage under Title I, and may thereby present a possible financial risk to PBGC based on the inapplicability of

the funding and fiduciary standards set forth in that Title, does not, standing alone, provide a statutory basis for excluding

the plan from coverage under Title IV. Moreover, as you note in your submission, proper funding of a plan is also

required by the Internal Revenue Code. The IRS may impose a 10% excise tax on any unpaid accumulated funding

deficiency if a plan sponsor fails to make a yearly plan contribution. IRC § 4971(a). A 100% excise tax may be

imposed on the accumulated funding deficiency if the deficiency is not eliminated after notice from IRS. IRC § 4971(b).

Although these requirements are not specifically enforceable by PBGC, they do provide a genuine incentive for plan

sponsors to fund their plans soundly and therefore provide significant protection for PBGC. 

You similarly urge that the PBGC has, by the language of earlier Opinion Letters, impliedly incorporated the

interpretation you advocate. You cite PBGC letters describing [*9] the insurance program as extending to "employee

pension benefit plans that are tax-qualified." We have examined the letters you describe and in none of them does the

letter's conclusion depend on the interpretation of ERISA § 4021(a) that you advance. Instead, they are simply an

acknowledgment of the fact that the great majority of plans covered by the PBGC meet the conditions imposed by both

ERISA § 4021(a)(1) and ERISA § 4021(a)(2). 

Based on the foregoing, it is our opinion that the Plan meets the coverage requirements of ERISA § 4021(a)(2).

It is therefore unnecessary for us to address your arguments that the opinion of the Department of Labor concerning the

definition of an "employee benefit pension plan" for Title I purposes is controlling in the interpretation of Title IV and

that the Plan is in any event not covered under Title IV as a result of the application of ERISA § 4021(a)(1). n1 

n1 We also discussed with you the argument that if the Plan is not an "employee pension benefit plan" within the

meaning of Title I, it is not subject to the termination requirements of ERISA § 4041(a)(1) because that it will not be

a "single-employer plan". ERISA § 4001(a)(15), enacted with the Multiemployer Pension Plan Amendments Act of

1980 ("MPPAA" ), defines a "single-employer plan" as a "defined benefit plan (as defined in Section 3(35)) which is not

a multiemployer plan." ERISA § 3(35), in turn, defines a defined benefit plan as a "pension plan other than an individual

account plan." Arguably, the Department of Labor definition of "employee pension benefit plan" would exclude the Plan

on the basis that it will include no common law employees. 

However, we do not believe that Title IV coverage is so limited. As discussed above, ERISA, as originally enacted,

extended Title IV coverage to plans meeting the requirements of IRC § 401(a), regardless of whether they met the

criteria of ERISA § 4021(a)(1). Congress gave no indication with the enactment of MPPAA that it wished to alter the

basic coverage of Title IV. Rather, we think, Congress intended to draw on Title I only for the definition of the term

"defined benefit", not to modify the definition of "plan" under Title IV. [*10] 

Partners Are Counted As Participants for the Purpose Of the 25 Active Participant Ceiling Under ERISA §

4021(b)(13) 

As discussed above, the Plan is subject to Title IV of ERISA pursuant to ERISA § 4021(a)(2). You assert, however,

that even assuming coverage on this basis, the Plan should be exempted from coverage under ERISA § 4021(b)(13) as

a plan "established and maintained by a professional service employer which does not at any time after the date of

enactment of [ERISA] have more than 25 active participants in the plan." 

You urge that because the partner participants in the Plan are not employees within the meaning of Title I, they are

not "participants" within the meaning of ERISA § 3(7). You then conclude that they are not "participants" within the

meaning of ERISA § 4021(b)(13). We cannot agree. 
As you admit in your submission, PBGC itself has defined "active participant" as (1) any individual who is currently

in employment covered by the plan and who is earning or retaining credited service under the plan or (2) any non-vested

individual who is not currently in employment covered by the plan but who is earning or retaining credited service under

the plan. 29 C.F.R. [*11] § 2610.2. This definition does not rely on the Title I definition of "employee," nor, for that

matter, does it rely on the Title IV definition of "employee." 

If, however, the Title IV term "active participant" referenced "employee," we would use the Title IV definition

contained in ERISA § 4001(b) which states, in relevant part, "a partnership is treated as the employer of each partner

who is an employee within the meaning of Section 401(c)(1) of the [Code]." We note that ERISA § 4001(b) is not meant

merely to define employers under Title IV. Were that the case, that section would refer to IRC § 401(c)(4), which

defines "employer." Rather, it refers to IRC § 401(c)(1), which defines "employee." Reference to that section of the

Code discloses the following: "the term 'employee' includes, for any taxable year, an individual who is a self-employed

individual for such taxable year." IRC § 401(c)(1)(A). That section further provides that "[a] partnership shall be treated

as the employer of each partner who is an employee within the meaning of paragraph (1) [of this section]." IRC §

401(c)(4). In addition, IRC § 404, which covers deductibility of contributions to plans, speaks specifically [*12] to the

status of self-employed individuals and, echoing § 4001(b) of ERISA, defines such individuals as employees pursuant

to IRC § 401(c)(1). Therefore, partners are plainly "employees" under Title IV. 

Since the Plan has more than 50 partners who are active participants, the Plan is ineligible for exclusion under

ERISA § 4021(b)(13). 

You urge, however, that the PBGC should act to correct Congress' purportedly unintentional expansion of

termination insurance coverage, effected by its amendment to the Internal Revenue Code in section 401(a)(26). You

suggest that this unintentional expansion of coverage is likely to encourage many professional service employer plans

to terminate rather than to merge and be subject to the requirements of Title IV of ERISA. What you request is not

within PBGC's discretion to grant. We note, moreover, that since the enactment of the Tax Reform Act of 1986, which

added Section 401(a)(26), Congress has twice amended the Internal Revenue Code without addressing the concern you

raise. Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100-203, 101 stat. 1329 (Dec 22, 1987) and Technical

and Miscellaneous Revenue Act of 1988 (TAMRA), Internal Revenue [*13] Amendments, Pub. L. No. 100-647 (H.R.

4333) (October 22, 1988). We therefore suggest that if Congress indeed acted unintentionally, its having done so would

have to be demonstrated more clearly than you have done here. 

Conclusion 

Based upon the foregoing, we conclude that the Plan is subject to Title IV of ERISA pursuant to ERISA §

4021(a)(2), and that it is not eligible for the professional service employer exclusion under ERISA § 4021(b)(13)

because it fails to meet the mandatory ceiling of 25 active participants. 

If you have any questions pertaining to this matter, please contact Peter Gould of my staff at the above address or

at (202) 778-8823. 

Carol Connor Flowe 

General Counsel