Leased employees

[k man]

some of the companies leased employees are allowed to participate in the profit sharing plan but since the company does not have a 401(k), they would like to participate in the leasing companies 401(k) plan. can they participate in both plans if one is a profit sharing and the other is a K plan?

[Guest dbvail]

This is gonna be a bit long, but I'll take a crack at it.......

The client organization (CO) leases employees from a leasing company (PEO). For this purpose I assume it's a full-on PEO, not the Kelly Girl type of temp help etc., and that there are a significant number of leased employees.

This does not permit the CO from ignoring the leased employees in it's qualified profit sharing plan.

I believe that by executing a joinder agreement with the PEO, the CO has adopted the PEO plan for the use of the CO. So it's really the CO's plan, just using the PEO doc etc for cost and convenience. Indeed it is a multiple employer plan with each employer tested individually for compliance.

So your client has two plans, the PS standalone and the 401k via joinder. The employees can take advantage of the 401k if they are leased (document wording permitting and compliance permitting), and all employees, leased or otherwise, are in the PS.

So, I would consider adding the 401k feature to the CO's profit sharing plan and be done with it. It may even be cheaper than paying for two plans, even if the PEO's is offered at discount.

We have done work with PEO's for some time, and if one of their CO's wants their own plan (cross tested usually) then they get their own and have the 401k imbedded - cuz all ee's are in anyway.

Good luck in the grey area of PEO. Any other thoughts are most welcome.

[k man]

this particular profit sharing plan carves out some employees. it passes the discrimination tests.

[Guest dbvail]

That's fine. Carving out still starts with recognizing them as employees. It sounds like they are excluded from the PS, but they certainly can take advantage of the leasing company's plan. My observation was that the client might just do it all in one plan.

[k man]

does the client org have to adopt the leasing co. plan or can the leased employees just participate in both? they dont want to offer a 401(k) because they will be top heavy and have to give a contribution to all employees.

[jaemmons]

Whose the common law employer of the employees in question? From your post, it seems as if the "CO" is, which would preclude them from being able to participate in any plan sponsored by the PEO, unless the CO was a participating employer, as they are not employees of the PEO.

[alanm]

The CO can participate in both plans; however to offer a 401k to the leased employees and not to the nonleased employees probably will not work unless the CO, when adopting the Leasing company MEP, excludes high comps and Keys from being eligible, then discrimination goes away because no High comps, either leased or not, have a 401k plan.

the top heavy issue remains because both plans must be aggregated for testing. Assuming the PS is at least 3% that should be no problem.

[k man]

let me summarize again

Client - HCE's and some NHCE's participate in Profit Sharing Plan.

Leasing Org - Client would like all NHCE's to be able participate in the K portion of the leasing company plan, including those that participate in the PS plan.

[jaemmons]

As long as the "Client" formally adopts their plan, as a participating employer, they can participate. This is of course, assuming that they are employees of the "Client" and not of the Leasing org. However, this would require mandatory aggregation for top heavy and other certain IRC limit testing, as eluded to in former posts to this thread.

[k man]

jaemmons, i think they are all employees of the leasing organization. i guess this is where it gets hairy because i am not sure about the specifics other than the fact that the employer's attorney (who is of no use) says that the employer is leasing all of his employees from the PEO.

[Guest dbvail]

I believe that absent the "Kelly Girl" temp employee arrangement, these leased employees are th employees of the Client Org, not the PEO. You may try to exclude them as a class, but they are included in the coverage tests, and if the plan won't pass then they are in. This means they are in the PS plan, and would also be in the 401k if adopted. The issues with PEO plans was better defined two years ago, but still has the potential to confuse. Good luck.

[k man]

i agree, they are still included in coverage testing. so the bottom line is that the client org. needs to adopt the leasing company plan as a participating employer?

[Guest dbvail]

In my experience it has been more efficient to add the 401k feature to the existing PS plan. This saves whatever expense the PEO will charge for using their chassis, and simplifies testting etc. as data won't need to be shared between PEO compliance folks and yourself. Good luck.