PEO Multiple Employer Plan

[Guest Midas]

If an employer participates in a Multiple Employer Plan with a PEO and withdraws from the multiple employer plan, is this considered a plan termination to the employer withdrawing participation?

Also, if the employer that withdraws sets up a new plan that they alone sponsor, do the succesor plan rules apply in this situation or is this considered a new plan?

[WDIK]

Some answers can be found here and here.

[Guest dbvail]

Our belief is that the employer is only using the PEO chassis to carry its own plan. We've been at it for many years and this is the only reasonable position we accept. As such, your client really has their own plan, currently using the PEO doc with a joinder agreement to support it. If they choose to move on, then they draft a VS etc., or adopt a priototyoe plan to continue the same plan they really have today. The assets are in their plan, regardless of funding medium. The assets can be moved elsewhere, it is not a plan termination, just a change in investment providers. Hope this helps.

[Guest Midas]

WDIK - Thank you for the links. They were very helpful.

dbvail - the client I am working with had a 401(k) with a PEO(co-sponsored), terminated participation, then started a simple 401(k) with another PEO(co-sponsored). Now they wish to stop participating in the PEO simple 401(k) and sponsor their own simple 401(k). Would none of these events trigger succesor plan rules? Even if they were co-sponsor in the PEO plans? Based on the links provided by WDIK and the information you provided, it seems like the answer is no for both questions, but I just want to confirm that I am understanding this correctly. Thanks.

[Guest dbvail]

Midas - I would be comfortable in viewing the existing plan as the clients plan, and not use the concept of co-sponsor. They have their Simple plan, just using the PEO's document and services. They can amend their plan to use someone else's document and not have it constued as a termination. That, for what it's worth, is how we see the PEO world today. Good luck.

[WDIK]

The issue of a successor plan is pertinent if distributions of elective contributions are being made to participants in a terminating plan.

Midas, are you trying to determine whether or not the successor plan rules apply because there is an attempt to make the distributions? If so, it appears to me that distributions should not be made. As I interpret dbvail's comments, there hasn't been a termination at all, just an amendment and restatement (I am not sure I am in agreement with this view, but am not an expert, and this is not relevant to the point I am trying to make.), so no triggering event for distributions. It also appears to me that links provided indicate that distributions are not appropriate in such a scenario because of the successor plan rules.

If there is another reason that you are asking about successor plans, please elaborate.

[Guest Midas]

WDIK - There are a couple of reasons I was initially thinking successor rules might apply.

1) I am glad you brought up the issue of distributions. Rollovers were made from the original 401(k) to the new simple 401(k). If the plan was just moving from one provider to another, would assets not have to be directly transferred? If rollovers were made, is this acceptable or is this considered distribution? If considered distribution, what are the consequences?

2) The other reason I thought successor rules might apply is because the employer is leaving the co-sponsored PEO relationship to sponsor their own plan (another simple 401(k) that they alone will sponsor). On the surface, it "looks" to me like a new plan, not a transfer of a plan to another provider. If this action is not considered a plan termination, what are the proper steps for the employer to start the new simple 401(k)? Do they just amend plan sponsor and plan ID (which is currently the PEO) and make the asset transfer to the new plan?

[WDIK]

If rollovers were made, is this acceptable or is this considered distribution?

Rollovers elected by plan participants are still distributions.

If considered distribution, what are the consequences?

http://benefitslink.com/boards/index.php?showtopic=4183&st=0

If this action is not considered a plan termination, what are the proper steps for the employer to start the new simple 401(k)?

I would look a spinoff/merger type of approach, but you need more reliable advice than I am able to offer.

[Guest dbvail]

While there is legitimate concern for how to proceed in an area that is admittedly weak on available IRS guidance, we have been ok with the position that it is the CO (client organization) who has the plan, and that they use the PEO's document via joinder agreement. But it is still the CO's plan, and as such they can amend it. This often happens when the CO want's to add a Cross Tested Profit Sharing component and the PEO is a vanilla 401k. The CO restates their plan, no longer using the PEO provided doc. In years of holding this position we have not had any conflicts with IRS etc. Good luck.

[Guest Midas]

Thank you for all the comments!!! They have been extremely helpful.