Those darn leased employees!

[Guest erisafried]

The topic of the day is: improper exclusion of leased employees.

I have a client who recently discovered a *minor* compliance issue with its 401(k) plan. In a nutshell, it had a fairly sizable group of union employees who were magically transformed into leased employees a couple of years ago. Because union employees were always excluded from the plan, they continued to be excluded after they became leased employees, natch. Unfortunately, no one remembered to check the plan doc to see if leased employees were actually excluded. Not that it would've mattered anyway: the plan would've flunked 410(B) unless most of these folks were allowed to participate. The employees at issue are all pretty much similarly-situated, so there does not appear to be a good way to include only part of the group based on their job functions (or otherwise, really).

I know that there are standard fixes for this sort of thing. I am hoping that someone out there in TV land has tried something more creative (and less expensive) than the standard fixes. Client is not averse to using VCP rather than SCP, provided we can come up with a proposed correction that is cheaper than the Service is likely to require.

Anyone have any brilliant ideas or are we stuck with QNECs?

[austin3515]

I wonder if you read the exclusion of union employees more closely you would find that it still applies.

My recollection of the terminology is that it covers a "unit of employees covered by a collective bargaining agreement, with respect to which retirement benefits were the subject of good faith negotiations."

Does the status change to leased employees change the fact that they are still covered by a collective bargaining agreement?

Just a thought.

Also, I think employee leasing organizations often times have safe harbor plans, where, if one is provided, there's some sort of break for the customer organization.

[Brian Gallagher]

if the lesees are:

not more than 20% of nhce's of the employer and are covered by a money purchase plan of 10% and immed. participation and immed. vesting, or belong to a safe harbor plan

...they can be excluded from coverage testing.

Sec 401(n) has more

[mbozek]

Have you though this through? Collective bargaining agreements are negotiated between the employer and the union. Under the leased employee rules the employees are employees of the leasing organization. Did the union agree to the transfer of its members to the leasing organization? Did the leasing organization sign the collective bargaining agreement with the union? Does the union negotiate the labor contract with the leasing organization? Did the employer have this arrangment reviewed by labor counsel?

[Guest erisafried]

The circumstances surrounding this "conversion" are somewhat less than clear. As is often the case in the larger scale plan screw-ups, "turnover in the HR department" appears to be the cause of the problem. Thus, the people who actually know what happened are now gone, leaving the rest of us to play detective.

With this in mind, assume for the moment that the contextual information I provided is irrevelant other than the given that otherwise eligible employees were improperly excluded from plan participation. I am primarily interested in creative options for dealing with this issue. We will sort out the other issues (if any) separately.

PS to Austin3515: you raise a good point, and I will investigate it further.

[mbozek]

E: This is a matter that needs to be reviewed by labor counsel to determine if the union employees are still part of a collective bargining group under the labor laws after they were transferred. Reg. 1.410(B)-6(d) provides for exclusion of cb employees in a plan that covers both cb and non cb employees. "Thus a cb employee is always an excluded employee with respect to the mandatorily disaggregated portion of any plan that benefits noncollectivley bargained employees." If counsel renders an opinion that the employees are members of a cb group then they can be excluded from the leased ee plan. This more is a labor issue than a benefits issue.

[Guest erisafried]

Good point.

Unfortunately, the facts are not really helping me out too much. The group of employees at issue were formerly all collectively bargained. At some point in the past (when? who knows?), most of them ceased to be collectively bargained (the union booted them out, apparently because of the sort of work they did at the time). All of these employees--the handful of union people as well as the larger group of other people--were provided to the plan sponsor by a succession of leasing companies.

I agree that we can exclude the union people from consideration. The remainder, however, are plain old leased employees who should've been in the plan for at least several years (or excluded in the plan document--again assuming 410(B) compliance is not an issue).

[austin3515]

I'd go with "scriveners error." (of course I'm not an ERISA attorney, so bear that in mind) I.e., it was never the intention to include them, and the plan doc was poorly written.

Was it common knowledge that they were excluded? Especially if it was communicated in writing. Perhaps the summary plan description was accurate? Were they covered by plans at the PEO? Regardless of whether the PEO plan was a safe harbor, it would help your case of scriveners error if they actually had a retirement plan.

Aggressive? Probably. But its a better answer than that they were improperly excluded...

I have assumed that 410(B) is not an issue (but I think it is, although only parenthetically).

[Kirk Maldonado]

Scrivener's error is a good suggestion, but whether or not the doctrine will apply in a specific case if very fact-specific. My research on this point lead me to conclude that it isn't nearly as valuable as you might think at first.

You should get competent ERISA counsel to advise you on this point.

[Guest erisafried]

Thanks for the input, all.

Not that anyone would know from my moniker, but I do, from time to time, amuse myself with thoughts that I myself am a competent ERISA attorney. Then, I come across a particularly hairy problem and reality intrudes. Ah well...working in this field keeps a guy humble if nothing else.