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Guest Article
(From the January 17, 2012 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)
In its recent "leased employee" compliance initiative, the IRS found that most qualified retirement plan sponsors are correctly applying the leased employee rules.
The Project Summary reports that operational defects were found with only a few plan sponsors, who generally elected to voluntarily correct their mistakes under the EPCRS program. (The IRS took additional enforcement action in a small percentage of cases that appeared noncompliant.) Fully one-fourth of the plan sponsors were found to have correctly applied the rules. Somewhat surprisingly, 65 percent of the plan sponsors were found to have incorrectly indicated that they used leased employees (i.e., by checking Box 3F on Form 5500).
The summary notes that leased employees are required to be treated as common-law employees for purposes of several qualification requirements:
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Failure to properly treat individuals as leased employees can have a harmful ripple effect on plan compliance, as the IRS explains:
If leased employees are not properly treated for plan purposes, they will be excluded from participation and related plan benefits. Additionally, demographic results may be skewed so that testing is incorrectly performed, limitations are improperly calculated and discrimination in favor of highly compensated employees (HCEs) may occur. |
A separate IRS release explains that a worker is a leased employee under Code § 414(n) if four requirements are met:
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The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.
If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.220.2692, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2012, Deloitte. |
BenefitsLink is an independent national employee benefits information provider, not formally affiliated with the firms and companies who kindly provide much of the content and advertisements published on this Web site, including the article shown above. |