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Does anyone know how switching between client organizations of a common PEO effects an employee?


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Considering that the employee was never an employee of the PEO. it should.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I think you are going to need to reference the co-employment relationship contract and the 401k plan document of BOTH employers (old and new) and see how they interact with the PEO.

In some PEO relationships, the employee is actually also an employee of the PEO. When we were under a PEO, we were employees of that specific PEO and their name was on our plan, our paychecks, they were the employer of record for unemployment, etc.

So I don't think there is a one size fits all answer to your question. A lot will depend on the relationship between the employer and PEO.

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While hr for me is correct regarding 401(k) plans, the issue is not about a 401(k) which a PEO can provide under a multiple employer agreement, the issue is about Health Plans. A co-employer situation is not allowed for Health or Welfare Plans

If hr for me checks, it should be found that the PEO was NOT the employer of record or unemployment, they were just the reporting agency of record. I know of no state that bills a PEO for Unemployment Benefits for the eligible ex-employees of their clients.

Also if you check the health insurance coverage and the cafeteria plan document, you will see that the PEO is only the agent NOT the Plan Sponsor.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns is correct- I read the message but didn't look at the forum it was posted in. I missed it was a health and welfare issue rather than 401k. But again I would suggest plan docs and the PEO agreement. I am still not sure this is a one size fits all answer. Several variations of the PEO model can and do exist.

When we left the PEO, any ex-employees were still counted as their employees and our company started over as a new employer with the state of Texas as if we were brand new with no rating experience. Once we pulled out, all future terminated employees did fall back on us. And any employee who terminated while we were in contract with the PEO fell back to the PEO for unemployment and COBRA, 401k etc. When we pulled out, we were not forced to take terminated 401k balances for "our" employees. Our PEO was the plan sponsor of our health insurance plan. We were not forced to take anyone on COBRA onto our new health plan. And we had to set up brand new health and welfare insurance on our company.

Now I was brought in to take the company out of the control of the PEO so I was only under it for about 4 1/2 months. But this was my remembrance.

It may not work that way now, but it did back when we were under that specific PEO.

eta: so I went back to the document that I have archived yes, the PEO is defined as the "plan sponsor" of the PEO Group Health Plan. It was possible. Again, may have changed since then, but that is why it is important to look at that specific client's documents.

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I think that you are confusing Workers Comp with Unemployment regarding having no rating experience.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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hr for one. Texas seems to be the only state that allows this and this has only been possible since Senate Bill 1286 which became effective September 2013. I have not found any other state which allows this and I am surprised that the IRS and DoL have not made an issue of this. It certainly seems to create a MEWA which would need to file with the DoL etc.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Well it was being done back in 2005-2006 by this PEO. I don't know how they justified it to the DOL/IRS. I do know how it was sold to clients. Texas can be a strange state and its own monster, and that may be why this large PEO can use it and get business by doing it.

I had other issues with the PEO and how they handled a 401k issue and it was just another reason that we pulled out. While they say they cover a lot of liability, per the DOL, the employer is usually at least co-responsible for most if not all of what the PEO does on their behalf. So it would not surprise me if they were "working around" the laws in place.

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I too stand corrected, but for a different reason. I assumed that the group was under it's own contract and the transfer would have been to another group with a different contract. Never thought to consider the PEO was the contract holder. And the 401(K) comment in the reply did not even strike me. Guess I should have re-read it. Sorry.

Lee

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  • 1 month later...

Preface: I am a benefits administrator at a PEO.

PEOs are the employer of record for all federal taxes and for SUTA taxes in the majority of states. There are only a handful of "client reporting" states, wherein the PEO acts as the reporting agency but files and pays SUTA under the client's name/EIN - Missouri and New York come to mind. SUTA claims in PEO reporting state fall back on the PEO at least while the client is still with the PEO and in some states even after the client leaves the PEO.

PEOs are also permitted to, and most do, sponsor health and welfare plans for their worksite employees. There is nothing, legally speaking, that prevents a client company from sponsoring their own benefit plans but most PEOs require the client companies to adopt the PEO's plans in their service agreement. Of those that will allow a client company to adopt their own plans, most will not touch them for anything other than payroll deductions, which are given back to the client on the payroll invoice.

To answer your original question, it depends on who the plan sponsor is. If an employee works for a worksite employer (client) and is covered by a health plan that is sponsored by the PEO and that employee later moves to another worksite employer that also offers the PEO's health plan, the waiting period should not start over (unless there was a significant lapse of time between DOT at the first worksite employer and DOH at the second). If the health plan was sponsored by the worksite employer, the waiting period would start over unless both worksite employers offer the same plan - IE: Company A and Company B are commonly owned but are separate legal entities so they have separate contracts with the PEO but share the same (client sponsored) health plan and all employees of A and B are covered by that same client sponsored plan.

It is theoretically possible that the PDs of the PEO sponsored health plans could require the employee to satisfy the WP again if they change worksite employers AND those worksite employers aren't related to each other in any way (common control or ownership) but I would be something more than shocked if this were actually written into the PD....that would be an ERISA/125 nightmare and I don't know anyone who would want to deal with that kind of a loophole.

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