Jump to content

Leasing Companies & Benefits


Recommended Posts

PA company.

Company XYZ has 100 employees. 3 are leased to a non-profit XYZ community programs (XYZCP). XYZCP has its own board and is a 501c3. Company XYZ is a for profit with over 100 owners.

Currently, the 3 leased employees are under all the benefits plans of company XYZ, NOT XYZCP.

How should we proceed? I've done a bit of research, which I'm 95% confident of. But I wanted some other opinions to check myself.

Link to comment
Share on other sites

So when you say that these 3 employees are leased to XYZCP, does that mean they are actually employed and receive paychecks from XYZ? If so, then I don't see a problem.

IRC §414(n)(3)©

In other words, a leased employee must be treated as an employee of the recipient for purposes of a cafeteria plan, a group term life insurance plan, or the other plans listed above

Am I misreading the statute?

P.S. yes, they are employees leased from XYZ to XYZCP. They receive paychecks from XYZ. They meet the definition of "leased employee".

Link to comment
Share on other sites

As provided in the statute, those employees are employees of XYZ Corporation but could be excluded under the terms of the plan documents from employee benefit plans sponsored by XYZ. After 1 year of being leased employees, they are also treated as employees of XYZCP for testing purposes, ie, in determining whether or not XYZCP's plans are discriminating in operation. They are not required to be included in XYZCP's plans, although customary practice is to include failsafe language in the plan docs which would provide that "leased employees are not eligible to participate hereunder unless their coverage is necessary to avoid discrimination in operation".

Moreover, the requirement to include them is mitigated by their inclusion in the XYZ benefit plans, the value of which would be used in the nondiscrimination testing.

In this case, if XYZCP is really a charity, as you aver, it is unlikely that XYZCP's plans are discriminating in operation. Therefore, it is likely that the only issue really facing both XYZ and XYZCP is whether or not their documents correctly reflect what is happening.

Link to comment
Share on other sites

Thanks for the reply...that might be good news.

I wasn't 100% sure if the leased employees could remain on the leasing company's benefit plans. So they can stay on the leasing company's benefit plans....BUT, for testing purposes, must be tested under the recipient company's plan documents. Correct?

Any risk to this arrangement. I figure the 100% safe thing would be for company XYZCP to get its own insurance, 403b, etc...but of course, this is a hassle.

P.S. XYZCP does NOT have any employees other than the ones that it leases.

Link to comment
Share on other sites

Thanks for the reply...that might be good news.

I wasn't 100% sure if the leased employees could remain on the leasing company's benefit plans. So they can stay on the leasing company's benefit plans....BUT, for testing purposes, must be tested under the recipient company's plan documents. Correct?

Any risk to this arrangement. I figure the 100% safe thing would be for company XYZCP to get its own insurance, 403b, etc...but of course, this is a hassle.

P.S. XYZCP does NOT have any employees other than the ones that it leases.

Of course, if the CP doesn't have any plans then there isn't any testing to be done.

I think you're getting answers from two different angles and it might help if you clarify your concern. Seems to me the two issues are 1) does the CP have to provide its own plans or can the employees simply be covered by XYZ, and 2) what is the impact on the CP of having the leased employees.

As for #1, generally speaking, no, the CP doesn't have to have it own plans, especially since they're all covered under XYZ's plans (there may be some nuiance of federal or state law that I'm missing but for the cost of an hour or two, a competent employment lawyer in your area can confirm that for you, which I strongly encourage you to do).

As for #2, since the CP doesn't need any plans of it's own, there is zero impact on the CP (section 414(n) and "leased employees" and testing only matter if the CP has plans).

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...