Company A leases most of its employees from a hospital. Company A wants to start its own 401k plan. The owner would like to exclude the leased employees from company A's plan, but would likely fail coverage.

When the owner pays the hospital for the leased employees services, included in that is a portion that is for the leased employees retirement benefits in the hospitals plan. Lets say it works out to be a 5% of pay contribution for each employee.

Question: Can the owner take credit for that 5% in this plan? In other words, if the owner were to make a 3% safe harbor contribution plus an additional 2% PS contribution to Company A's plan, does that mean that since he is already giving 5% to the hospital for the leased employees retirement benefits, he can put 0% in for the leased employees into Company A's plan?

Thanks

See Code Section 414(n).

(n) Employee leasing

(1) In general
For purposes of the requirements listed in paragraph (3), with respect to any person (hereinafter in this subsection referred to as the "recipient") for whom a leased employee performs services--

(A) the leased employee shall be treated as an employee of the recipient, but

(B) contributions or benefits provided by the leasing organization which are attributable to services performed for the recipient shall be treated as provided by the recipient.

I agree that Company A can take credit for the 5% it pays to the hospital. My question is whether that satisfies the safe harbor requirements. Specifically, is at least 3% fully vested under the hospital plan?