The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an independent advisory group in Massachusetts is representative of a common inquiry involving independent contractors and retirement plan eligibility. The advisor asked:
“Should independent contractors be included in the retirement plan of the employer who contracts for their services?”
Highlights of Recommendations
• Generally, an independent contractor is not an employee of the business for which he/she provides services and, therefore, would not be eligible to participate in the business’ retirement plan.
• However, an independent contractor could contribute to his/her own retirement plan based on his/her self-employment income.
• The determination of whether a person who provides services to a business is considered an employee or independent contractor is based on the degree of “control or direction” provided by the business to the worker, and is dependent upon the facts and circumstances of each case.
• As a general rule, an individual is an independent contractor if the business for which he/she performs the services, does not control the means or methods used by the worker to accomplish the promised result.
• It is important for the business owner to look at the entire relationship with the worker, consider the degree of his/her right to direct and control the worker’s actions and, finally, to document each of the factors the business owner uses to arrive at the determination.
• The IRS provides some helpful online information on determining worker status here.
• As an alternative, the business can ask the IRS to make a formal determination on the worker’s status by filing IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
Conclusion
Determining whether a worker is an employee or independent contractor for retirement plan coverage purposes can be tricky, because it is based on the facts and circumstances of each case. With the expert guidance of the Columbia Management Learning Center, advisors can provide their clients with the knowledge and tools to help them make the correct call. 
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2013 Columbia Management Investment Advisers, LLC. Used with permission.
