PEO's and multiple employer issues

[Guest robin s vatalaro]

Does anyone know of a resource I could look at or have an answer to the following?

FACTS:

A Professional Employee Organization (PEO) is in existence to lease employees to other companies and handle the benefits of those employees. Let's say the PEO leases employees to company A and to company B. A and B are unrelated companies and neither A nor B sponsor a qualified plan. The arrangement prevents A and B from having to worry about providing benefits and administering those benefits - the PEO handles those issues. The PEO wants to install a profit sharing plan with a 401k provision for it's employees that it leases to A and B. A wants to fund a 3% of pay profit sharing contribution to A's people leased from the PEO. However, B does not want to deposit profit sharing for B people.

QUESTION:

Is the plan of the PEO a multiple employer plan? If so, then it would be no problem for A and B to do their own thing with regard to profit sharing because testing is done separately.

Any advice would be appreciated. Thank you.

[Guest kr]

As far as I know the IRS has not made a final determination on this yet, but they are recommending that PEO's establish a multiple employer 401(k) plan rather than a single employer plan. You must have the plan drafted as a multiple employer plan, and I would recommend that you engage an ERISA attorney. If the plan is drafted correctly, the scenario above would be legal.

FYI, I work for a PEO in WI that just set up a 401(k) plan, so I know how confusing it is!

Kerrie

[Guest robin s vatalaro]

Hi Kerrie - thanx very much for your help. Do you know of any good articles, IRS publications/opinions, or references on these issues that I could read? Thanx again!