Did PEO miss the window?

[Guest PBJ]

PEO contracts with a number of different types of clients to provide employees at the client's workplace. One client entered into an agreement with the PEO for "permanent, full-time" employees at its location. Clearly, there is some question of whether the employees are the common law employees of the client, not the PEO. This has been somewhat ignored for the past few years.

The PEO has sponsored a 401(k) plan since 2000 for the benefit of all those worksite employees. Exclusive benefit issues were raised by a new TPA. To comply with the exclusive benefit rule, the PEO would like to convert the plan to a multiple employer plan. But, have all the deadlines passed for doing so? Now, what??

Any help would be greatly appreciated.

Thank you.

[J Simmons]

Many prototype and some individually designed plan documents contain multiple employer plan language so that if all the adopting/participating employers happen not to be a 'single employer' under control group or affiliated service group rules, the plan has language 'built-in' to handle the contingency of the plan being or becoming a multiple employer plan. You need to look at the language.

There was the relief under Rev Proc 2002-21 until the end of the plan year that began with or in 2003 for PEOs to convert to MEPs. Apart from that, if a client is not listed as an adopting/participating employer of the PEO-sponsored 401k plan, then those workers who are in reality employees of the client rather than of the PEO could not properly benefit under the 401k plan until the first year that it's documents are changed to add the client as an adopting/participating employer of the PEO's 401k plan. The exclusive benefit rule and the duty of fiduciary to apply the plan's terms as written would be problematic otherwise.