PEO Executive responds

[Guest Lugeguy]

Having worked for several PEO including CNA and having access to a large 401k administrator (CNA Trust) and legal support, the real challenge is understanding that PEO's operated different styled 401k plans, with matching features and testing across all the co-employees. The IRS found this to be not to their liking and issued a ruling requiring PEO's to operate as MEWA's and fall under that guideline. (MEWA = Multiple Employer Welfare Arrangements. The other issue is co-employment is not codified in any laws and the US DOL recently issued guidance saying from their view point and purposes the client of the PEO is the common law employer, primarily because the PEO may have paper control, but the worksite employer has day to day control.

The PEO business model is a great idea for small employers and can deliver complex programs at a lower tranaction cost. The 401k can be delivered at a lower cost, but the PEO now has to do a little more work. Darrin has done a great job on covering this issue and I have called and discussed the PEO industry with him over the last few years. There is no easy way for you to transition your clients to a new 401k plan. Your current plan must stop....sooner the better. You must get with a provider that has experience in this area...Transamerica comes to mind...that can give the PEO a program in the Multiple Employer arrangement as required by the IRS. The PEO industry is lucky the IRS did not rule that those single plans were disqualified.

Sorry for the long dialogue. The point is you need to seek expert advice. There is no easy way to do what needs to be done.