PEO Question

[Guest mab]

Good morning,

I have a PEO issue I would appreciate some commentary on. I have a client who just purchased a block of plans from a defunct entity. Included in this block of plans were a couple of plans involving PEOs which were not addressed by the TPA, PEO or other employers.

Obviously, per Rev. Proc. 2002-21, the PEO decision date was missed. My question is whether you still think we can avail ourselves to the process delineated under this Rev. Proc.

On one hand, I think we are okay because we still haven't passed the compliance deadline of 12/31/03 for terminating plans.

On the other hand, the initial deadline was missed. I did read the various commentaries by Derrin Watson and I denote Dick Wickersham's quote on being in "subtantial compliance" with the Rev. Proc. Granted, Dick is now retired so it is anybody's guess as to what is "subtantial compliance" and whether the "substantial compliance" theory still holds water with the IRS.

If you we can't use 2002-21, are we left with EPCRS?

Thanx in advance for your comments.

[GBurns]

What do you mean by "just purchased a block of plans"?

[Guest mab]

A TPA went under so my guy bought his book of business at a steep discount.

Ignoring reps, warranties and disclosure obligations, we are trying to clean up the PEO oversight now rather than later.

[Ron Snyder]

No, IRS is adamant that the deadlines in RP 2002-21 are hard and fast. Moreover, NAPEO put out the word to its members, so even if the TPA firm was negligent the client shares in the problem and should have found its own solution.

If I were a TPA contemplating rendering services to such a PEO firm, I would:

1. Say "no, thank you" and refer them to a good tax attorney for clean-up work; or

2. Agree to handle the clean-up work myself only with a very strong disclaimer and waiver of liability for any acts or failures to act by the prior firm.

I would also not accept "rollovers" from the now non-qualified plan to a new multiple-employer qualified plan established for the PEO's clients.

You are venturing into a mine field: good luck.

[Guest mab]

vebaguru,

Tx. for your comments. When you say the IRS is adamant about the deadlines, is this in any written publication? Did you hear this at a seminar?

I have not been able to find much of anything out there post Rev. Proc. 2002-21.

[Ron Snyder]

This came from the comments made by officials at the LA Benefits Conference last year. I could get into my materials and tell you who it was if necessary. However, I suggest that you contact Harry Becker (familiar with PEO issues) or Jeanne Royal Singley (the author of the RP, phone 202-283-9888) at National office.