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ADP Total Source As Co-Employer?


Guest merlin

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We have a client who sponsored a traditional profit sharing plan for many years. Two years ago we amended the ps plan to add 401k features. The ps assets were trustee-directed, the k assets were participant-directed within a familly of mutual funds. ADP has come along and told client that they can save him a bundle of money on employee expenses such as Workman's Comp by signing on to their Total Source program, with ADP Total Source becoming a "Co-employer". The catch is that ADP total Source wants to handle the investment of the 401k plan assets, but they don't want to handle the investment of the ps assets. They've told the client that he has to terminate the ps portion of his current plan, and transfer the k money over to the ADP plan, which I'm assuming is a multiple employer plan. At least that's how he's describing it to me. Questions:

1. Does anyone have any experience with this kind of transaction?

2. What is a co-employer? Is ADP Total Source a PEO? Who is now the employer?

3. Is it possible to terminate only the ps portion of the plan and still leave the 401k portion intact?

4. Even if it's possible, might there be an issue with the 12-month rule regarding the 401k deferrals?

5. I have no idea of Mass Mutual's (ADP's fund custodian) fees or how they relate to the fees the plan is paying now. If they're higher, but the sponsor is getting the benefit of lower employee expenses elsewhere, does this raise any fiduciary or PT issues?

6. Are there any other issues I need to be aware of?

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There are many issues that the employer should consider and investigate rather than rely on a sales pitch and materials. The 401(k) is probably minor and yes it will be a multiple employer plan.

I suggest that the state Dept of Insurance and the Dept that regulates PEOs be checked. Some states carry this material on their websites.

I also suggest looking at the Q&A section, of BenefitsLink, titled "Who's the Employer".

Whether ADP can actually reduce the WC should be verified. What will be the effect on future rates if he decides to terminate the PEO in the future? Will his rates be surcharged because of no experience? Same for GL.

Will joining the PEO cause FMLA and other obligations? Is your client okay with these new regulations and responsibilities.

What will be done about the other employee benefits such as the health insurance and Cafeteria Plan?

You did not say how large your client was, but, the average size of a PEO client is under 15 employees and even that can be questioned. Do they have an acceptable track record with employers of the same size as your client?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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