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jkdoll2

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Can you tell me if you put this language in a document - do you need to make the document an individual drafted document - or is there something in the prototype document that accounts for this. We use corbel. The plan sponsor wants this language.

Definition of Employee: An individual qualifies as an Employee only if the Employer treats the individual as its employee for payroll purposes by reporting his or her compensation on a Form W-2 reflecting Employer's Employer Identification Number. Individuals not so treated by Employer are to be excluded from Plan participation even if a court or administrative agency determines that such individuals are common law employees and not independent contractors. Notwithstanding anything to the contrary in this paragraph, also excluded from the term Employee and from Plan participation is any individual (i) who enters into an agreement with Employer to perform services as a sales consultant and/or to solicit sales of sales-consulting services on behalf of sales consultants, or (ii) who is subject to an agreement with Employer that the individual has signed, which provides that the individual has no right to participate in any benefit plans or programs that Employer maintains for its employees.

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I agree with rcline, but I assume you also want to exclude those who agree not to be covered by any employee benefits (item (ii) in the OP definition).

In either case, watch out for minimum coverage issues (IRC Section 410(b)).

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I've seen language in the excluded employee section of some GUST documents that excludes independent contractors who are reclassified as employees by governmental action or court case. This would seem to address the same issue. What I don't recall is if that exclusion is still allowed in the EGTRRA documents.

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Independent contractor exclusion clearly still allowed. The language about excluding them even if they are later determined to be employees is also still allowed by the IRS--it protects an employer from being required to cover independent contractors who sue, are determined to be employees, and then come knocking on the door saying "where's my contribution for the last 5 years?".

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  • 2 weeks later...
--it protects an employer from being required to cover independent contractors who sue, are determined to be employees, and then come knocking on the door saying "where's my contribution for the last 5 years?".

Hey, I think I was a contractor for Microsoft a bunch of years ago. Can I still get my stock options? :-)

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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"Independent contractor exclusion clearly still allowed. The language about excluding them even if they are later determined to be employees is also still allowed by the IRS--it protects an employer from being required to cover independent contractors who sue, are determined to be employees, and then come knocking on the door saying "where's my contribution for the last 5 years?". "

But, if the plan doesn't pass coverage for those years during which they were erroneously misclassified as independent contractors, then you have to cover them, right?

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Since "You would have to do whatever might be necessary to pass minimum coverage, correct.", How would "The language about excluding them " protect an employer when they do come knocking ?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Didn't Microsoft, FedEx and such others fail in attempting to exclude allegedly leased employees and consultants ? Most Sales Consultants should fail the test for being ICs.

Weren't there other employers who also failed in trying to exclude employees who "signed away"' rights to employee benefits ? I do not recall the cases but it seems familiar.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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"Since "You would have to do whatever might be necessary to pass minimum coverage, correct.", How would "The language about excluding them " protect an employer when they do come knocking ?"

It would protect the employer to the extent that coverage testing would still pass. Example - 100 NHC, 70 required to pass. There are 10 of these employees in question who are excluded, all others are included, so employer is otherwise covering 90% of the eligible employees. Subsequently it is determined that these 10 are, in fact, employees. Since coverage still passes with them excluded, employer does not have to do "make-up" contributions.

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George --

As Belgarath demonstrates, the language protects the employer if 410(b) passes when excluding the newly-determined employees. Without that language, the employer would not be protected at all, even if the plan passed 410(b) without considering them.

This language was only blessed by the IRS after some of these cases went through the pipeline, because no one had ever considered using such language until after they started losing cases and found huge liabilities staring them in the face. (I think the IRS balked at the language, at first, but then came around after a while.) In fact, in one of the first cases (without the helpful language), Microsoft (or Xerox, or someone) settled with the IRS, short of litigation, agreeing that these individuals were employees, and then lost the lawsuit when the new "employees" sued for pension benefits. Moral (I guess): "pigs get fat, hogs get slaughtered"--and, "make sure your attorney looks at the big picture before settling".

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