Leased Employees/Plan Design

[Cathy from Chicago]

Doc A owns 100% of a few companies and 50% of other companies with Doc B. As of a month ago, all employees of all companies became employees of a new company (of which Doc owns 100%) and are leased back to his other companies (both the 100% and 50% ownership ones).

Ideal situation - give as little as possible to everyone except Doc A, including Doc B.

Doable situation? - An accountant did research on this and feels that if a 10% Safe Harbor contribution is made to all leased employees, Doc A can pretty do whatever type of plan he selects. I am not familiar with the 10% SH rule - so, is it true?

Of course the call with the question just came in and they all wanted the answer yesterday so...any help or reference anyone can give me is much appreciated. Thank you.

[QDROphile]

There is a reason for having provisions about leased employees in section 414(n) of the Internal Revenue Code. Section 414(n) is followed by section 414(o). If you like puzzles and can break the code, the answer is: 414(n), 414(o), which reduces to (n),(o), which further reduces to "no."

[Blinky the 3-eyed Fish]

What the accountant is referencing is the safe harbor plan under 414(n)(5)(B). Briefly, if the leased employees have a 10% money purchase plan with 100% vesting an immediate participation, they can be excluded as employees as far as the employer's plan is concerned. However, it only applies if no more than 20% of the nonhighly compensated workforce is leased.

So, indeed the answer is "no", but now you have some background.

[QDROphile]

And even if the NHCE percentage is less than 20% I don't think it works because the exception only applies to the leased employee rules and does not address the other contolled group rules that would aggregate at least all of the 100% owned businesses. In your situation, the leasing organization is 100% owned, too. Pretty transparent device. Not effective.