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Employees Xfer to a Leasing Company


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#1 austin3515

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Posted 18 August 2010 - 04:34 AM

1) All employees switch from payroll of the employer to the payroll of the leasing company.
2) They now participate in that employer's multiple employer plan
3) No break-in-service, so we can't pay people out
4) Can't terminate because of the existence of a replacement plan.

So what do we do?
1) Merger to multiple employer plan (seems unlikely)?
2) Nonelective transfers to new plan and then plan termination of old plan.

Have never really used nonelective transfers, but I'm pretty sure they would apply hear
Austin Powers, CPA, QPA, ERPA

#2 four01kman

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Posted 18 August 2010 - 02:54 PM

Wait a minute Austin. Why is there no "break in service"? Why can't you terminate the plan?

The leasing company isn't a member of the controlled group of the employer. At least, you didn't say it was. There doesn't appear to be any reason you can't terminate the plan and transfer assets to the leasing company's plan.
Jim Geld

#3 austin3515

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Posted 18 August 2010 - 03:00 PM

Because the employees are still the common law employees of the same company, so there is no "severance of employment."
Austin Powers, CPA, QPA, ERPA

#4 austin3515

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Posted 18 August 2010 - 04:11 PM

"There doesn't appear to be any reason you can't terminate the plan and transfer assets to the leasing company's plan."


So maybe wer're saying the same thing. I agree that if we do the nonelective transfers to the leasing plan, we can terminate the old plan. But people can't roll to IRA's or cash out, etc. - do you agree with that?
Austin Powers, CPA, QPA, ERPA

#5 Guest_named_Sieve_*

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Posted 18 August 2010 - 10:09 PM

It is not a 401(k) distributable event if there is a successor alternative DC plan (with certain exceptions). Do you meet the exceptions?

If this does not involve elective deferrals, then there's no problem terminating the plan and distributing.

#6 austin3515

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Posted 19 August 2010 - 05:33 AM

It does involve deferrals.
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#7 four01kman

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Posted 19 August 2010 - 02:07 PM

If the employees are on the payroll of the leasing company, aren't they employees of the leasing company? If so, then there has been a distributable event.

If they are not employees of the leasing company, whose employees are they? Certainly not the "employer", I believe the leasing company fulfills all the necessary aspects of being the employer.
Jim Geld

#8 austin3515

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Posted 19 August 2010 - 02:14 PM

Small medical practice A has no patience, desire, time, etc. to worry about paryoll, employee benefits, etc. Plus, they are a small company so can't get good rates. Solution: Have your employees transfer over to a leasing company, like ADP total source. That doesn't mean that you have no employees for really any purpose I can think of, and certainly not ERISA. The Dr. can hire, fire at will. So they are the common law employees of the person they work for...

Please someone else chime in here and make everyone agree with me!!!
Austin Powers, CPA, QPA, ERPA

#9 rcline46

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Posted 19 August 2010 - 02:21 PM

Note that the leasing company is sponsoring a MULTIPLE EMPLOYER plan which the firm has joined. That should be enough of a clue that the employees are NOT common law employees of the leasing company.

#10 four01kman

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Posted 19 August 2010 - 02:22 PM

Entrepeneuer.com says:


Leased Employees
Definition: Workers who are officially employed by a professional employer organization, which is responsible for overseeing all HR-related functions, but who actually perform all work for your company

Employee leasing is a contractual arrangement in which the leasing company, also known as a professional employer organization (PEO), is the official employer. Employment responsibilities are typically shared between the leasing company and the business owner
(you, in this case). You retain essential management control over the work performed by the employees. The leasing company, meanwhile, assumes responsibility for work such as reporting wages and employment taxes. Your main responsibility is writing a check to the leasing company to cover the payroll, taxes, benefits and administrative fees. The PEO does the rest.
Jim Geld

#11 four01kman

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Posted 19 August 2010 - 02:25 PM

See if the following link helps you out:

http://www.401kfocus.com/leasedees.htm
Jim Geld

#12 austin3515

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Posted 19 August 2010 - 02:30 PM

Except that the leased employee rules do not apply to COMMON LAW EMPLOYEES. Not really yelling, I'm actually laughing out loud because I sound like a broken record ;)
Austin Powers, CPA, QPA, ERPA

#13 PensionPro

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Posted 19 August 2010 - 02:53 PM

Apparently, you are talking about a payroll service provider arrangement, and not a leased employee situation at all. You should be able to transfer the assets to the MEP. I am assuming the medical practice is co-sponsoring the MEP.
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#14 austin3515

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Posted 19 August 2010 - 03:04 PM

I suppose I could more appropriately label it as a PEO. But they are definitely on the payroll tax returns of a 3rd party, which of course is an important distinction from a payroll provider.
Austin Powers, CPA, QPA, ERPA

#15 PensionPro

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Posted 19 August 2010 - 04:07 PM

Who is the common law employer?
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#16 austin3515

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Posted 19 August 2010 - 04:23 PM

The medical practice??? Am I the only person who thinks you can't pay someone to take over your role as the Employer for ERISA purposes? Hey, why not put just your employees in ADP total source, and that way the Doc can have his own plan, where he can max out and not give his employees a dime! That will pay for ADP's fees!! What a great design!

But of course we all know if it sounds too good to be true it usually is...
Austin Powers, CPA, QPA, ERPA

#17 PensionPro

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Posted 19 August 2010 - 04:30 PM

The analysis is fact-specific. You can have a situation where the medical practice is the common law employer and the PEO is merely the payroll agent. Or the PEO can establish itself as the common law employer and lease the employees to the recipient.
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#18 Stuartt

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Posted 19 August 2010 - 04:31 PM

I suppose I could more appropriately label it as a PEO. But they are definitely on the payroll tax returns of a 3rd party, which of course is an important distinction from a payroll provider.



If the worksite employer meets the conditions of a common law employer, you don't look at the leased employee rules.

Worksite employees will be common law employees.

#19 austin3515

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Posted 19 August 2010 - 04:37 PM

My understanding of how these arrangements usually work is that they are really just outsourcing the payroll/benefits function. Again, the ability to hire and fire remains with the doctor, and I have always been told that is a pretty darn good rule to apply when determining common law status. In the situaiton I am desparately trying to communicate, such is the case.

The Doctor:
Sets the pay rate
Hires & Fires
Tells you when to come in, what time you can go home, and how to do your job.

I don't what other criteria anyone can point to that would suggest that these might not be the common law employees of the medical practice. To me, it is as obvious as 2+2 = 4.

And this is my understanding of how a PEO arrangement usually works, which is why the IRS came out several years ago mandating the multiple employer approach.
Austin Powers, CPA, QPA, ERPA

#20 Guest_named_Sieve_*

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Posted 19 August 2010 - 04:58 PM

I'm not quite sure who I'm supporting here--I believe it is austin--but it is not a severance from employment if common law employees of an employer are hired by a PEO & then leased back to the same employer for whom they previously performed services. Remember, leased employees are treated as employees of the service recipient for pension purposes. How about this from the preamble to the final 401(k) regs:

"Comments were requested on whether a change in status from a common law employee to a leased employee described in section 414(n) should be treated as a severance from employment that would permit a distribution to be made. After reviewing the comments, these final regulations do not add the change to leased employee to the list of distributable events and retain the use of the section 410(b) definition of employee for purposes of section 401(k). Because an individual who is a leased employee (as defined in section 414(n)) is treated as an employee of the recipient of the individualís services for purposes of section 410(b) (unless the safe harbor plan requirements described in section 414(n)(5) are met), the individual does not incur a severance from employment as a result of becoming a leased employee." (Emphasis added.)



So, there cannot be a distribution to employees who move to a leasing co. due to the lack of a distributable event: there is no severance of employment, and there cannot be a plan termination because a DC plan remains for the employer's employees.