Does transfer of employees affect participation in PEO's flex plan?

[WDIK]

Employees leased to Company A through a PEO arrangement participate in the PEO's flex plan. What would prohibit the employees to have uninterrupted participation in the flex plan under the following scenarios?

1) Employees transfer from Company A to Company B. Company B has the same ownership as Company A and also has a leasing arrangement with the PEO.

2) Employees transfer from Company A to Company C. Company C has a different ownership than Company A and also has a leasing arrangement with the PEO. Company C purchases the clientele of Company A and employs the same staff.

3) Employees leave Company A and are rehired to Company D. Company D is an unrelated entity with respect to Company A, but also has a leasing arrangement with the PEO.

Thanks for your expertise.

[GBurns]

To me the more important question should be.. Can any of these employees (of the client organization) really legitimately participate in this flex plan of the PEO in the first place?

[WDIK]

Would rephrasing the scenario as follows alleviate your concerns?

Employees of Company A participate in a multiple employer 125 plan. What would prohibit the employees to have uninterrupted participation in the plan under the following scenarios?

1) Employees transfer from Company A to Company B. Company B has the same ownership as Company A and also participates in the multiple employer plan.

2) Employees transfer from Company A to Company C. Company C has a different ownership than Company A and also participates in the multiple employer plan. Company C purchases the clientele of Company A and employs the same staff.

3) Employees leave Company A and are rehired to Company D. Company D is an unrelated entity with respect to Company A, but also participates in the multiple employer plan.

[Guest Mbrockway]

Doesn't the basic document for the plan address this issue? I'm not familiar with basic documents for Sec 125 plans.

[WDIK]

There is no document to refer to as this is a "What If?" scenario. I guess I was fishing for any official guidance on the situations described.

[GBurns]

Wouldn't a multiple employer section 125 plan set up by the PEO be a MEWA? If not why not? If it is a MEWA, it would most likely be one that is subject to state regulation. Will it meet state requirements? If it is a state that does not allow MEWA, What happens?

If the arrangement either does not meet state requirements or is not allowed, it does not matter which company the employees work for because there would be no valid plan.

That is why my first response raised the issue of whether or not the arrangement could even exist for any employees to participate in.

[WDIK]

Wouldn't a multiple employer section 125 plan set up by the PEO be a MEWA?

As I understand it, yes.

Will it meet state requirements?

Is there some reason to assume it is impossible to draft a document that would meet state requirements? If not, assume that it does meet state requirements.

If it is a state that does not allow MEWA, What happens?

Why must we assume that it is in a state that does not allow MEWAs? Let's assume it is in a state that does allow them.

Your caveats are appreciated and noted. If it is a legal impossibility under any circumstances to have a multiple employer flex plan, please state so and let's move on. Otherwise, please assume the arrangement is valid.

[GBurns]

I doubt very much that you could draft documents to get around state MEWA regulations. That is probably why most are under the DOL after meeting the DOL requirements.

All the MEWA section 125 plans that I have seen are all DOL none are state.

I would not assume that even a state that allows MEWAs would allow this arrangement as a valid MEWA.

To just assume that the arrangement is valid seems foolhardy when there is so much pointing to the fact that it might not be possible to have the arrangement. Check your state MEWA requirements to see if your state even allows MEWA. If your own state does not allow MEWAs then you could draft all the documents in the world and still would not have a valid arrangement. Then check to see if any of the states that allow MEWAs would allow this arrangement as a MEWA. Chances are that they would not. So draft all you want, it would still not be valid.

[WDIK]

Thank you for getting to the root of your original objections.