Coleboy1: There is much to unpack from your fact pattern.
I am assuming that the 300 service providers were common law employees of the client and also participating in the retirement plan. I further assume that the new leasing arrangement is a PEO type arrangement where the leasing agency becoming the employer of record (handling payroll, etc...) while the client still retains discretion over how and when these 300 individuals perform their services. I also assume the 300 individuals will not be covered under its current retirement plan.
To answer your question: The "moving" of the 300 participants deserves a very hard look to determine if a partial plan termination has been triggered. As you know, the determination of a partial plan termination is based on facts and circumstances. Case law, of course, is one very important factor and so is the prevailing view of the IRS. I assume this issue matters because the plan has a vesting schedule.
But your partial plan termination issue is just the tip of the iceberg. If these 300 individuals are not covered under the client's plan, will they be covered under the PEO's plan? Are the terms of the PEO plan similar to the client's plan?
Remember that no matter what you may label these 300 service providers, they would likely still be "common law employees" of the client and still may lay claim to be covered under the client's plan (as opposed to the PEO plan).
The plan's exclusion is for "leased employees", which is a very specific definition under 414(n). Look at that definition. Would these 300 be excluded under that definition right now? And assuming they can be excluded for 410(a) purposes, they would still be included for 410(b) coverage purposes unless there was an exclusion there (e.g., age 21/year of service, union, etc...)
