When someone has a money purchase plan, when must they include leased employees?

[Guest Enda80]

When someone has a money purchase plan, when must they include leased employees?

[Guest Sieve]

Makes no difference whether it's a MPPP or PSP or 401(k)/PSP or DB, leased employees do not have to be included/covered under an employer's plan. They are like any other employees (since they are treated as employees): they must be considered when testing the plan for IRC Secton 410(b), whether or not they participate, but it is not required that they participate in the plan. Whether they actually will participate in the plan will be determined by the design of the plan as provided in the document.

For this purpose, they will not be considered as employees until they meet the definition of leased employee: they must, among other things, provide services pursuant to a written agreement and have performed services for the recipient for at least one year (IRC Section 414(n)(2)), after which they will be considred employees for purposes of determining whether certain employee benefit provisions have been met (IRC Section 414(n)(4)(A)).

[J Simmons]

It does matter if the leasing org has a plan--at least a certain type of plan.

The recipient ER need not take into account the leased EE if he is covered by a 10% MPPP of the leasing org. The 10% MPPP must not use a Social Security integration formula and it must sport full and immediate vesting. The 10% MPPP must cover 100% of its employees that are leased out and earn $1,000 or more during plan year or any of the 3 prior plan years.

The recipient ER may exclude such leased EEs if they do not make up more than 20% of the recipient ER's NHCE workforce--regular NHCEs that have worked for the recipient ER on a substantially full-time basis for a period of one year, plus the leased employees.

See IRC § 414(n)(5)

[Guest Sieve]

John --

Have you ever seen such a safe harbor plan? The plan you describe has been part of the leased employee rules from the very beginning, but I've never seen a leasing organization provide such a plan--and, of course, most recipient organizations do not meet the rule that no more than 20% of the recipient's NHCEs can be leased or else the the safe harbor plan exception is not available.

Enda80 -- Aside from the safe harbor scenario, remember that any benefits provided by the leasing organization under a plan it provides for the leased employees is considered as being provided by the recipient organization when the recipient is performing testing for its own plan.

[J Simmons]

I've consulted recipient ERs that wanted to exclude leased EEs from their plans, explaining what the leasing org's plan had to provide in order to ignore those leased EEs. I was on two occasions consulted by leasing orgs that wanted the safe harbor plans. But never drafted one.

[GBurns]

Are we sure what was meant by "leased employees" ?

Sometimes the term is used in reference to employees purportedly falling under a PEO arrangement.

Sometimes the employees are truly leased.

Doesn't it make a difference ?