Is this a multiple employer plan?

[Kirk Maldonado]

I have a situtation where it is not entirely clear to me whether or not the arrangement should be classified as a multiple employer plan.

The employer leases some of its workers to unrelated entities. However, my client treats all of those workers as its employees for all purposes. However, those unrelated employers make "profit sharing" contributions to the plan.

You could argue that it is a single employer plan, because all of the participants are employees of my client. On the other hand, because profit sharing contributions are made to the plan by unrelated employers, you could argue that it is a multiple employer plan.

(The workers are not subject to a collective bargaining agreement.)

Any thoughts?

[david rigby]

I don't know if these are the only, or most important, issues:

1. Is there more than one "participating employer" under the Plan, presumably with formal statements of adoption?

2. Who is paying the compensation (and W-2) for these EEs?

If the "other" company does not have an adoption of the plan, I wonder how it thinks it can deduct anything as a contribution to a qualified plan.

If the "other" company does have an adoption of the plan, does that raise questions of coverage relating to its other employees?

[Guest Ralph Amadio]

Kirk, by any chance is the primary organization a public employer?

Whether it is or not, from the information you provide, the plan appears to be a multiple employer plan without proper documentation. I have run across this scenario with public employers attempting to set up 3121 plans to avoid SSA contributions and also attempting to avoid contributions to a State PERS. If private sector, there are obvious multiple issues.

[Kirk Maldonado]

1. I don't know if the unrelated employers have executed any plan documents and/or adoption agreements, although they have contributed to the plan.

I'm not worried about the coverage of the other workers of the unrelated employers, since they aren't my clients. Similarly, I'm not concerned about whether or not the unrelated employers can properly deduct their contributions to the plan.

2. The participants in question are treated as employees of my client for all purposes, including paying all of their compensation and issuing them Form W-2s.

3. This is not a public employer.

Thanks for the input, PAX and Ralph.

[Guest Ralph Amadio]

Kirk, my concerns, based on your new information, would probably be based on facts and circumstances. For instance, if your employer is shown as the single employer for plan purposes, and employees are covered under the plan, are there HCE or testing concerns, discrimination issues, etc.? As you know, I claim little expertise in ERISA plans, specializing in government, however I would carefully check how the plan is being administrated to eliminate fiduciary and compliance concerns caused by the addition of these outside employees. As a final suggestion, I would consider requesting a Letter of Determination on the plan in its current form, if the client will not consider eliminating the plan altogether or properly documenting it, if no multiple employer documents are in place.

[Kirk Maldonado]

Ralph:

1. I'm not worried about any nondiscrimination problems, because 100% of my client's employees are covered by the plan.

2. All of the participants in the plan are treated as my client's employees for all purposes, so that there aren't any participants who are treated as the employees of the unrelated entities.

3. I am in the process of completely restating the plan for the GUST amendments, so I will can all of the multiple plan rules, and I will certainly get a determination letter.

Thanks for your comments.

[GBurns]

While 100% of the plan participants are your client's employees I still see the issue of contributions that are not employer contributions from an entity that is not the employer.

How do you account for these ineligible contributions?

If these employees worked for the unrelated entities for more than 1 year does that not raise other issues?

If your client has accepted these contributions over mulitple years and reported them as employer contributions would the plan not be disqualified for, among other things, being in operation a defective multiple employer plan?

Whether or not the other entities deducted their contributions (for tax purposes) what did your client account for the monies received as being?