Temporary Employees

[Lori Foresz]

I need some ideas on how employers exclude temporary employees (i.e. employed via an agreement with a temporary staffing agency) if the plan has immediate eligibility?

If you exclude them by class (and then define the class in the document) is this still treated as a disguised hours requirement like the exclusion of part-time employees?

Or does it boil down to the fact that temporary employees are not common-law employees of the recipient employer and thus can't be eligible for the plan if the plan only convers common-law EES?

I have been reading and reading but nothing is coming together. Any help is greatly appreciated.

[Guest Moe Howard2]

1) Who will issue them W-2 during the first year of service for recipient company?

2) Who are they the common law employees of ... beginning on the day that they start working for the recipient company?

3) If they are deemed common law employees of recipient company ... then they must be allowed to enter plan immediately (if they meet eligibility requirements).

4) If they are common law employees of the staffing company .... do they meet the IRC 414(n)(2) requirements of being leased employees of recipient company after their first year of service ? If yes, then they will enter the recipient company's plan on the first day of their second year of service.

5) As long as they remain leased employees of the recipient, then they cannot be common law employees of the recipient . If hey remain common law employees of the staffing company, the staffing company would continue to issue them W-2 .

6) Does the staffing company also have a plan ? If yes, and if they are leased employees of the recipient ... then they could possibly participate in both the plan of the staffing company and recipient at the same time. The recipient company could possibly reduce its contribution by the amount that the staffing company contributes. It depends on what the recipient compnay plan document says about leased employees.

[mbozek]

Moe: RE # 4. There is no statutory requirement under either ERISA or the IRC that requires the recipient employer plan to cover leased employees who complete a year of service. ERISA 202a permits the employer to limit participation to members of the eligible group. IRC 410b only requires participation by a non discriminatory group which can exclude participation by leased employees.

To avoid claims for benefits the recipient employer should require each leased employee to sign a statement acknowledging that the leased employee is not an employee of the recipient and not eligible for benefits under the recipient's plan.

[Guest Moe Howard2]

mbozek, the original posts says that the plan has immediate eligibility. I take that to mean immediate entry into the plan on hire date. Since IRC 414(n)(2) says that a leased "worker" cannot attain the status of a leased "employee" until after he works 12 months for the recipient .... then it stands to reason that the leased worker (who turns into a leased employee after working 365 days) would enter the plan on his 366th day of work (immediate entry on the day he becomes a leased employee). Thus, my comment about entry into the plan after one year of service only appies to Igolden's situation.

Sure the plan can exclude leased employees from participation (only if it is a nonstandardized plan). But the original post made no mention of such exclusion.

I've never heard of a written agreement between workers and employers which will waive the IRS leased employee rules. If a worker meets the IRC 414(n)(2) requirements of being a leased employee ... then he is a leased employee, and if the plan document does not specifically exclue leased employees .... then he has to be allowed into the plan upon meeting the eligibility requirements.

[mbozek]

The purpose of requiring a leased employee (or independent contractor) to sign a written acknowledgement is to begin the period in which the employee can file a claim for benefits under ERISA. Leased employees frequently file claims for benefits under ERISA long after they began working for the recipient and demand that the employer pay retirement or 401k benefits on the grounds that they are eligible participants in the plan. The statute of limitations for filing a claim for benefits begins when the employee signs the agreement (not when the employee terminates employment) and expires within a period of 2-6 years after the agreement is signed preventing the leased employee from making a claim for benefits under ERISA.

[Guest Moe Howard2]

mbozek, and just where did you hear about this written agreement thing which allows the leased worker and employer to ignore the IRS code and plan document?

Maybe the employer could have employees of a safe harbor 401(k) sign an agreement which says that the employer does not have to match for them. I wonder if that agreement would supersede benefit laws also?

[mbozek]

ERISA 202a permits an employer to limit participation to employees who are in an eligible group defined by the employer. IRC 410b only requires that a plan cover a non discriminatory group of employees which can exclude leased employees and independent contractors. There are many cases which have held that an an employer can exlcude all leased employees as an ineligible class of common law employees. Why do you think differently?

The written statement has nothing to do with ERISA or the IRC. It prevents a leased employee or inde contractor from proceeding on a latent claim for benefits under retirement plan as a common law employee who is eligible to participate in the plan long after employment commenced.

[jquazza]

Mbozek,

I don't know how protection you would get from that acknowledgment. What we've been doing is when we draft the document, we exclude reclassified employees (e.g. independent contractors who are subsequently determined to be common law employees.) You still have to demonstrate coverage with these folks as nonexcludables, but if they come back to claim a piece of the pie (did someone say Microsoft?) they won't even get little crumbs...

[mbozek]

While the reclassification language is sufficient for meeting the nondiscrimination requirments of the IRC I have never seen it cited by a fed ct to deny benefits where a leased employee makes a claim under ERISA. There are many cases where cts have dismissed claims by independent contractors for benefits under ERISA on s/l grounds where the there is an acknowdgement that the contractor is not eligible for benefits from the recipient employer.