Leased Collectively Bargained Employees

[Guest pension222]

I was just talking to someone who contends that if the leased employees are collectively bargained employees of the leasing company, then we don’t even need to worry about whether or not they are covered by a qualified retirement plan maintained by the leasing company since they are excluded from any non-bargained plan that the leasing organization may sponsor.

In other words, he believes that if the leasing company employees are collectively bargained, then the employer who is leasing them can ignore them completely for nondiscrimination and coverage purposes regardless if they are covered by any qualified plan sponsored by the leasing company.

It’s an interesting idea but I’m not sure I agree. Does the collectively bargained attribute of the leased employees follow them through to the firm that leases them?

[GBurns]

I think that more clarification is needed.

Very often the term "leased employee" is used to denote a PEO type arrangement.

However, as used in the IRC etc it means something else.

What you have described seems to be a temporary staffing arrangement rather than a PEO arrangement. What do you really mean?

Your use of the terms "collectively bargained employees" etc rather than calling them unionized employees makes me wonder with whom the bargaining exists? Is there a union? When did the employees vote? When was it ratified? etc are questions that come to mind. Many state Depts of Insurance, the DoL and others have warned that such claims should be verified etc.

If they are unionized, then what the CBA says is also important in addition to the eligibility requirements (or exclusions) of the client's plan.

[Guest pension222]

Here is a bit more information.

A law office currently has about 80 rank-and-file employees.

The person I mentioned wants the employer to move all of the rank-and-file employees to a leasing organization who will then lease the employees back to the employer. I have been told that the leased employees would be collectively bargained employees with respect to the leasing company.

[mbozek]

Under IRS Notice 84-11 Q-14 and 15 and ERISA 202((a)(4), leased employees can always be excluded from a qualfied plan as a class of employees not eligible to participate regardless of whether they belong to a union. The leased employees have to be taken into account for 410b testing under the recipient employer's plan.

[KJohnson]

I guess that is the question of whether they would have to be included in 410(b). Would a leased non-resident alien have to be included. Would a leased employee who termed with less than 500 hours have to be included in 410(b) for a profit sharing plan? Maybe so, but I have my doubts. It may come down to a question of whether there is a requirement that the CBA be with the employer who sponsors the plan running coverage testing. If that is the case you would appear to be out of luck. However, I am not sure whether that is the test. Also, your fact scenario raises some questions about the bona fides of any CBA (which was GBurns point). While I don't know the answer looking at this for five minutes, I can at least give you the language from the 410(b) regs regarding the definition of collectively bargained employees that can be excluded from coverage....

(2) Definition of collectively bargained employee--(i) In general. A

collectively bargained employee is an employee who is included in a unit

of employees covered by an agreement that the Secretary of Labor finds

to be a collective bargaining agreement between employee representatives

and one or more employers, provided that there is evidence that

retirement benefits were the subject of good faith bargaining between

employee representatives and the employer or employers. An employee is a

collectively bargained employee regardless of whether the employee

benefits under any plan of the employer. See section 7701(a)(46) and

Sec. 301.7701-17T of this chapter for additional requirements

applicable to the collective bargaining agreement. An employee who

performs hours of service during the plan year as both a collectively

bargained employee and a noncollectively bargained employee is treated

as a collectively bargained employee with respect to the hours of

service performed as a collectively bargained employee and a

noncollectively bargained employee with respect to the hours of service

performed as a noncollectively bargained employee. See Sec. 1.410(b)-

7© for disaggregation rules for plans benefiting collectively

bargained and noncollectively bargained employees.

(iii) Covered by a collective bargaining agreement--(A) General

rule. For purposes of paragraph (d)(2)(i) of this section, an employee

is included in a unit of employees covered by a collective bargaining

agreement if and only if the employee is represented by a bona fide

employee representative that is a party to the collective bargaining

agreement under which the plan is maintained. Thus, for example, an

employee of either a plan or the employee representative that is a party

to the collective bargaining agreement under which the plan is

maintained is not included in a unit of employees covered by the

collective bargaining agreement under which the plan is maintained

merely because the employee is covered under the plan pursuant to an

agreement entered into by the plan or employee representative on behalf

of the employee (other than in the capacity of an employee representative with respect to the employee). This is the case even if all of such employees

benefiting under the plan constitute only a de minimis percentage of the

total employees benefiting under the plan.

Also, I think you lose the exclusion if more than 2% of the employees covered by the CBA are "professionals"

[mbozek]

I think the law firm needs to review labor law to answer this question. The law firm needs to use the union exclusion because they cant pass the 410b test if the employees are only leased ee. But this brings up the quesion of how the 80 ee are going to be made into union members since the law firm cant force employees to join one. How can the employer negotiate with the union who will lease the ee without the employees first being recoginzed for collective bargaining purposes as being represented by the union under the NLRA? In other words the employees have to cast a ballots supervised by the NLRB in which a majority of the votes have to specify that they want the union to represent them. Then the union will negotiate on behalf of the ee for benefits.

[Guest pension222]

Thanks for all of the input.

Here is my take on the issue.

IRC 414(n)(1)(A) says that the leased employee shall be treated as an employee of the recipient. The question is then if these collectively bargained "employees" are excludable from the recipient's non-bargained plan under 1.410(b)-6(d).

I suspect that they are not excludable because of the definition of the collectively bargained employee found in 1.410(b)-6(d)(2)(i). It says that there must be "evidence that retirement benefits were the subject of good faith bargaining between employee representatives and the employer or employers."

Now there may be evidence of good faith bargaining between the leasing orgainzation and employee representatives but I seriously doubt that there will be any bargaining between the recipient and employee representatives. If this is the case then even though 414(n) treats the leased employees as employees of the recipient, I don't think that they would be treated as collectively bargained employees under 410(b) with respect to plans maintained by the recipient.

Any other ideas?