Simple IRA, 401(k) and Leased Employees

[Guest mbaca]

I have a company that has a Simple IRA. They now have employees that are going to be eligible for the SIMPLE IRA.

However, the employees are leased.

Can the company include the employees in the leasing company's 401(k) plan and not the SIMPLE IRA.

Or do they have a choice of including them in the 401(k) plan of the leasing company or their SIMPLE IRA plan.

If the leasing company's matching formula is similar to the match of a SIMPLE IRA does it matter which plan the employees are in.

Finally do the employees have to be participants in each plan or can the employer choose which plan to put them in.

Thanks for your help.

[rcline46]

First question is are they really leased employees or are they common law employees of your employer? of both? This dictates your next step(s).

Even if leased employees, there are VERY detailed regulations on how leased employees can be kept out of your employer's plan, and a 401(k) at the leasing organization doesn't make the cut.

Review the Rev Ruling from this year on leasing organizations and qualified plans and see what the leasing company is doing about it.

[Appleby]

rcline46, what is the Rev Rul number?

[rcline46]

Actually Rev Proc. 2002-21.

You may also want to review the material in Derrin Watson's column found here in Benefitslink.

[Appleby]

Thanks

mbaca, the link to the column is below.

http://employerbook.hypermart.net/0221Comment.html

[Gary Lesser]

An employer may not maintain a SIMPLE IRA in a year that it also maintains a qualified plan such as a 401(k). [iRC 408(p)(2)(D)]

[Appleby]

True Gary-

but...I think in this particular case, it is the leasing organization that operates the 401(k), while the employer maintains the SIMPLE.

[Gary Lesser]

Appleby, you are correct.

The leased employee's would have to be covered in the SIMPLE IRA if they satisfy the eligibility requirements as the model forms do not permit them to be excluded.

A prototype SIMPLE IRA plan could exclude leased employees described in Code Section 414(n). To be excluded, however, such employees would have to be participating in a money purchase pension plan of the leasing organization that provides for a 10% or more nonintegrated contribution and be fully vested in all contributions. If so, the prototype would also have to affirmatively exclude them.

The leased employees could be in both plans, but could not in the aggregate defer more than the 402(g) limit on an excludable basis. Amounts above that limit would have to be corrected (in the 401(k)) and included in income.

[rcline46]

Ahhh, Gary - the 'in two plans' fun! For the uninitiated, the employee must be considered an employee of BOTH organizations! Leased employee in one and common law (usually) in the other, tested in both plans with full pay, but deferrals of only the plan they deferred to..... Much fun! NOT