alanm

I don't think it will work. The successor plan rule will apply to A. They should merge the old plan into the new one. The fact that A acquired B is a re-structuring of A not the formation of a new entity. B is the one who could terminate their plan before being purchased, under certain circumstances, and provide for distributions.

Yes they get a contribution-- The leasing organization either has a single employer plan or a multiple employer plan. Under the multiple, it is if company A has two plans and amended eligibility to include the two new participants. Under the single employer plan the leasing organization is way out on a limb because they are not really the common law employer. The IRS is going to say, Company A really sponsored two plans because more than 50% of A's employees are eligible for B's plan. Company A made the choice to lease their common law employees and that won't get them out of top heavy.

You are not going to get a definitive answer on this one without a legal opinion. The management contract has to analyzed. One issue is who is the common law employer? If the the management group contract is strong enough to include that if the client leaves, the employees are retained by the management group and re-assigned elsewhere, then possibly the management group can sponsor a plan for those employees. Usually, this is not the case and ownership of the entities dictates who can sponsor a plan.

It depends, if the leasing company(PEO) sponsored a single employer plan, the PEO holds themselves out to be the employer. IF the plan was a multiple employer plan, the worksite employer is the employer and the suceessor plan rule would apply and distributions should not be allowed.

I think you ask for the money back, I have in many instances and most participants pay- but if they don't, short of suing them there is not much you can do. There was a court case about this, what follows in a excerpt. Several participants who received incorrect benefits estimates sued Chase. They sought damages based on the amount of benefits set forth on the incorrect statements. In effect, they argued the erroneous benefits statements became part of the plan and that Chase was bound to honor the statements, mistakes and all. Additionally, these participants argued that estoppel principles required Chase to honor the erroneous statements and that Chase was liable for the communication error because it breached its fiduciary duties. In a refreshing, well-reasoned decision, District Judge Charles Siragusa ruled in favor of Chase. First, the court concluded that the incorrect benefits estimates were informal communications that did not amend or become part of Chase’s plan. The court next addressed the plaintiffs’ estoppel claims. Courts in the Second Circuit (Connecticut, New York and Vermont) recognize estoppel claims under ERISA only in “extraordinary circumstances.” A plaintiff must show that there was a promise, the plaintiff relied on the promise, injury was caused by the reliance, and an injustice will occur if the promise is not enforced. The court held that to have the requisite #&147;extraordinary circumstances” required to establish a valid estoppel claim, the plaintiffs would have to show that Chase’s actions were tantamount to fraud. Because there were no facts supporting such a finding (in fact, the court found the incorrect benefits estimates were the result of an honest mistake), the court rejected plaintiffs’ estoppel arguments.

If you were a participant in a 401k and had joint adjusted gross income above 62,000 you cannot have a regular IRA contribution, so don't use the recharacterization option. Your wife, if not a participant in a 401k, could have a regular IRA, but I believe it must come from earned income. Whether you could contribute for her out of your earned income I am not sure. Check with a CPA.

In the Microsoft case last year, Bill Gates got tagged by the court for his email correspondence because it came from his email address even though he denied sending it. The Courts are saying the email address constitutes signature, which would be ok for accepting enrollments or fund exchanges. Bill Clinton signed a bill in October making electronic signature, or email acceptable if a complex coding verification software was used. The Dol has not issued guidance on acceptance of email for such things as loans which would require a spouses signature. So, my opinion is enrollments from participant individual email addresses will be legal.

it does and is specified on the form

I think you have a bigger problem than the offset. IF leased employees turn into common law employees section 414 wouldn't allow them to be deemed also common law employees of the leasing company and therefore they should not be eligible for the ESOP any longer. You can't use pay from A as a contribution bases in the ESOP if they are not part of a control group. Circumstances may allow co-adoption but that is a complicated issue. See PWBA opinion 92-04A for an analysis of the leasing arrangement and who the employer is going to be deemed.

There aren't any exceptions. What is commonly done to avoid the situation when a plan is moved and liquidation triggers back end loads, the employer instructs the liquidating fund company to not charge the loads but instead bill the company. The company then remits a check outside the plan directly to the fund company.

I think you have a breach of fiduciary responsibility to notify participants. The question is what are the damages. The DOL is going to take the position that the highest yielding fund available after the change is the benchmark. They will probably relax to the point of allowing mapping to a similar type fund to the one that existed before liquidation, if you argue with them. The notice is required or a breach occurs. I would go ahead and pay them before they call the DOL, which will create an audit.

The recent inclination is for the DOL to consider them MEWAs on a multiple employer plan basis, however there has been no official PEO guidance issued. A lot of my PEO clients are going ahead and filing as if the health plans were MEWAs instead of taking the chance. There is a bill sponsored by the PEO industry, HR 1891 I believe, that is supposed to answer all of those questions. However, I think it is drafted to much in favor of the PEO and won't be passed.

Concerning audits of PEO single employer plans, I have represented several PEOs in such audits. The only time they pass is if the agent doesn't understand what a PEO is- the agent has the opinion it is like a Kelly girl operation whereby the the PEO sends temporary people to clients on a short term basis. In that case, the employees belong to the PEO. But, PEOs don't function that way, they take over paying and providing benefits to existing common law employee of the client employer. Only the multiple employer plan arrangement doing worksite testing will fly to an informed IRS agent. Very few big PEO single employer plans are still operating, they have been frozen long ago. The court cases and opinions I listed in my previous response will support this position.

What you have described is a leasing or agency arrangement and B employees are not A employees and can't be in their plan nor visa versa. The term "employee" is defined in ERISA section 3(6) to mean "any individual employed by an employer." An individual is "employed" by an employer, for purposes of section 3(6), when an employer-employee relationship exists. Whether an employer-employee relationship exists will be determined by applying common law principles and taking into account the remedial purposes of ERISA. See PWBA opinions 92-04A and 92-07A or review courts cases: Nationwide V. Darden, US Supreme court, 1992- another one is Coca-Cola V. Eileen Hilburn, 11th circuit court, no. 98-9608.

Net income on schedule C before any payments/draws are made to himself is his income basis of his contribution. In addition, he must pay self employement tax on that net income to qualify.

This issue is covered under ERISA section 1132. You are only required to give a statement to a participant annually if requested and you must provide it within 30 days of the request. As a matter of service, most TPAs and mutual fund companies provide a quarterly statement. Vesting is not required to be on the statement at all unless specifically requested by the participant.

Even if you could set up a NQP for independent contractors what would be the point? Each independent contractor would still pay tax on their contributions; the common law employer must pay tax on gains and contributions for the employee who gets the tax deferral while the money is in a Rabbi Trust.

Our firm does nothing but PEO plans look at our website for information http://www.slavic.net or email me at alanm@slavic.net

The original question is interesting. An egg is a potential chicken, whereas the chicken is an actual chicken. Since potentiality precedes actuality, the egg must have come first. Alan Moore

No. Only an employer can sponsor a plan for it's common law employees. Each independent contractor could set up a separate plan and use net income reported on Schedule C as a basis for computing contributions.

You do not include the employees of the worksite employers adopting the master leasing company plan in the test for the internal employees of the leasing company. The double testing arose when the leasing company(PEO) sponsored a single employer plan and included all worksite employees in one test. If 50% of the worksite employees were eligible to be in the plan, the worksite should aggregately test those employees with any other plan the worksite employer may sponsor. Therefore, in that case, you would have double testing of employees. Not many PEOs that sponsored single employer plans took this conservative approach, but there are IRS and PWBA opinions and other guidance stating their position is that the worksite employer is the common law employer despite the "Leasing label". Look at PWBA opinion 92-07A for clarification.

A multi employer plan is a collective bargain plan. A multiple employer plan is different than that and your situation would probably qualify. A mulitple employer plan requires each entity be separately tested so it won't help you. However, it would be advisable to run two separate stand alone plans because you do not have the 80% ownership to put both companies into one plan. The 50% common control test is only part of the control group test. You must also pass the 80% test and you don't unless you are an affiliated service group. There is also a 50% control test to see if the 415 limit must be aggregated per participant even though you don't pass the 80% control group test.

Most DC plans state that when a participant separates service they become a "terminated participant" and therefore not an "affected participant" under 411(d)(3). If they are not an affected participant, you can charge them. This position is supported by Borda V. Hardy 6th circuit court, decided in 1998. Since a terminated participant can remove their balance at will, they would not be "affected" by the imposition of a charge on their account under 411. As long as the charge is reasonable, I don't think there is a problem.

You can charge participants if it is allowed in the plan document. The authority to do so is in PWBA opinion 97-03A