eligibility and leased employees

[Santo Gold]

An employer (S-Corp with 2 equal owners) wants to start a PS plan for 2004 and would like to exclude as many non-owners as possible, at least for 2004 and 2005. We are considering a 2 year of svc requirement to enter the plan, which could keep everyone hired 7/2/2003 or later out of the plan until 1/1/06. Employer has a mixture of "regular" employees and leased employees. All of the current regular employees started either in late 2003 or in 2004. Leased employees started performing services in 08/2003, which is when the leasing agreement the company was enacted.

This may be too simple, but for these leased employees, is the day they started performing services for this employer considered their date of hire for plan purposes? Given the leasing date of 08/2003, that means their date of hire could not be earlier than this day, correct?

[GBurns]

You have issues beyond "Who's the Employer???"

I suggest that you first read the Q&A columns not only on "Who's the Employer?" but also the others on 401(k) and Advanced Plan Design, then consider seeking independent competent legal advice.

You also have conflicts in your post, namely, the actual "hire" date of these employees and who hired them. How can their date of hire be earlier than the date of the leasing arrangement unless they were employees of the client organization? When were they fired? Who rehired when? How many W2s dis they get for 2003? Why is this not a successor employer? Why not same desk rules?

It is quite likely that the client organization is still the employer and is the common law employer, which makes the leasing arrangement moot as far as this is concerned.

Additionally since a PEO plan should be a Multiple Employer Plan, would that plan even allow a co-sponsor to have such different eligibility rules?

[Santo Gold]

I may not have been clear in the original post, as I don't believe the hire dates are as complicated as they may seem. When I referred to hire dates prior to when the leasing agreement became effective (08/2003) I was thinking of when these leased employees first became employees of the leasing company, which may have been several years prior.

Let me restate things: The 2 owners started company A in 2001. They were the only 2 people who performed services for company A up until August 2003, when they signed a leasing agreement with a hospital. Starting in August 2003, these leased employees starting performing services at company A, many in a full time capacity. Sometime after August, 2003, company A also hired a few employees (which I referred to as "regular" employees in my initial post).

So, my question is that if Company A starts a PS plan for 2004 with a 2 year of service requirement and a 1/1 nearest entry date, then the earliest that a fulltime individual, whether a leased employee or regular employee, could enter the plan would be 1/1/06, correct? My concern centers on whether counting eligibility service for the leased employees is counted any differently than for the regular employees (who I am confident can be kept out of the plan until 2006). Does it matter which leased employees were hired by the leasing organization prior to August, 2003?

[GBurns]

If these employees were first employed years ago by the leasing company and are still employed by the leasing company and whose work consists of being assigned to work temporarily at various client worksites, then you have a different issue.

Normally this sort of temporary staffing is not referred to as leasing since that term is more often used for the PEO type of arrangement, rather than the Kelly type which is more often referred to as temporary staffing. However, I must admit that I really do not know what to call the type of arrangement which is not really temporary but long term. To complicate the matter the IRC uses the term "leased employee" with a somewhat different definition.

I also wonder whether these are really classifiable as leased employees. Whose payroll are they on? Who gives the W2?

There is an IRC provision that allows "leased employees" to be eligible if a certain number of hours are worked etc and it is possible to use eligibilty language to exclude all "leased employees". So doing that you could have a plan for regular employees only but with a 2 year eligibility which would effectively exclude them. But that raises the question of whether such a plan could pass the various tests, which I doubt.

So let us see if 1 of the resident experts will chip in regarding this.

[Guest TrustMe401k]

I won't go so far as to claim expertise on the subject, but i have dealt with several clients who have long-term leased employees. These leased employees are of the "Manpower" or "Kelly Temps" type.

I can't recite the reg but in our case the employer would have failed coverage if they excluded the Leased employees since they were (still are) a large portion of his workforce.

If you search for leased employees on these boards you will find the exact reg that covers leased employees as defined by the code for coverage purposes.

This may not help you, but we still excluded the leased ee's and also excluded all HCE's. (they didn't need the plan) since they wre only trting to provide abenefit to their "regular" employees.

As for the date of hire, we use the date the leased employee began service with our client and not the date they became a temp with the leasing organization. So at least for your point here, I would use 8/2003 as the hire date and a two year wiat would put them out until 8/05 or even 1/1/06 if semi-annual or annual enbtry dates.

[alanm]

the definition of leased employees in 414(n) was revised to drop the “historically performed” test and replace with a “primary direction and control” test. Therefore, if the employees remain under the “primary direction and control” of the hospital and Company A does not have “primary direction and control” the “leased” employees will not be considered employees of company A and the hire date is moot because they belong in the hospital's plan. Otherwise, if they came under the control of company A when they were so-called leased, then that hire date applies--not the one that predates the arrangement. I don't think it matters who pays them because the hospital could just be providing PEO type payroll services. Typically, hospital's setup several doctors in practice by providing a staff for them, in which case the hospital retains control; but this is a functional test and the two owners should know if they have the power to hire and fire and direct the personnel or not.

[mbozek]

I thought that the recipient employer for whom the leased employee performs services can always exclude leased employees as a class from being eligible to participate in the recipient's plan under ERISA 202(a)(4). IRC 414(n) only requires that leased employees be taken into account for non discrimination testing under the recipient's plan after performing a year of service but does not require that they become participants.

[GBurns]

I do not think that it has yet been established that these are really leased employees or who is the employer etc.