Employer A currently sponsors a profit sharing plan and is top heavy. Employer A uses the services of a leasing organization, Employer B. All employees of Employer A are leased through Employer B to Employer A. Employer B sponsors a 401(k) plan with liberal eligiblity requirements. The 401(k) plan of Employer B is not top heavy. Two employees of Employer A are ineligible for the profit sharing plan for the 2000 plan year, however, they met the eligibility requirements for Employer B's 401(k) plan but are not currently deferring any amounts. Under normal circumstances, if both plans were sponsored by the same employer and were top heavy, Employer A would have to provide a top heavy contribution for the two employees that were ineligible for the profit sharing plan but met the eligiblity requirements for the 401(k) plan. With the leasing organization scenario, does Employer A have to provide a top heavy contribution for the two ineligible employees?

Yes they get a contribution-- The leasing organization either has a single employer plan or a multiple employer plan. Under the multiple, it is if company A has two plans and amended eligibility to include the two new participants. Under the single employer plan the leasing organization is way out on a limb because they are not really the common law employer. The IRS is going to say, Company A really sponsored two plans because more than 50% of A's employees are eligible for B's plan. Company A made the choice to lease their common law employees and that won't get them out of top heavy.

I'm not so sure. The issue is whether or not the Leasing Company's plan should be somehow aggregated with Employer A's PS plan for top heavy testing. If they aren't aggregated I don't beleive the two employees should get a contribution since they aren't eligible for the plan. If they should be aggregated, how would you do the testing, seeing as teh Leasing Employer has other participants besides those in Employer A's plan???