Is a DB plan covering the owner's (adult) children subject to a PBGC premium payment? I am looking at taking over a 412(i) fully insured plan. The plan, in my opinion, is subject to the PBGC flat premium rate since the employer is not a professional service corporation and has employees. However, his employees are his children who have no direct ownership.The current TPA states they are not subject to PBGC premiums. Is there any exception here that I am missing?

No. A spouse would not be considered an employee, for this purpose. A child (age 21 or more) is an employee, though; the plan is covered, and premiums must be paid.

ERISA Section 4021, PLANS COVERED

(b) This section does not apply to any plan -

(9) which is established and maintained exclusively for substantial owners;...

Act Sec. 4021.(d) For purposes of subsection (b)(9), the term "substantial owner" means an individual who, at any time during the 60-month period ending on the date the determination is being made -

(1) owns the entire interest in an unincorporated trade or business,

(2) 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 interest in such partnership, or

(3) 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.

For purposes of paragraph (3), the constructive ownership rules of section 1563(e) of the Internal Revenue Code of 1986 (other than paragraph (3) (C) thereof) shall apply, including the application of such rules under section 414(c) of such Code.

1563(e) Constructive Ownership. -

1563(e)(6) Children, grandchildren, parents, and grandparents. -

1563(e)(6)(A) Minor children. - An individual shall be considered as owning stock owned, directly or indirectly, by or for his children who have not attained the age of 21 years, and, if the individual has not attained the age of 21 years, the stock owned, directly or indirectly, by or for his parents.

1563(e)(6)(B) Adult children and grandchildren. - An individual who owns (within the meaning of subsection (d)(2), but without regard to this subparagraph) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock in a corporation shall be considered as owning the stock in such corporation owned, directly or indirectly, by or for his parents, grandparents, grandchildren, and children who have attained the age of 21 years.