457 and PEO

[Guest Bward10577]

I have been approached by a PEO to take over our employees. We are a non-governmental not for profit and have a 457(b) deferred comp plan. Our employees would become employees of the PEO and wages would be reported under the EIN of the PEO. I have not been able to find any definitive answer about what impact the new relationship would have on the 457(b) future contributions, and/or the account itself. Does anyone have experience in this?

[TLGeer]

I have been approached by a PEO to take over our employees. We are a non-governmental not for profit and have a 457(b) deferred comp plan. Our employees would become employees of the PEO and wages would be reported under the EIN of the PEO. I have not been able to find any definitive answer about what impact the new relationship would have on the 457(b) future contributions, and/or the account itself. Does anyone have experience in this?

Wow. This raises a whole laundry list of possible problems. I would need much, much more detail on how the PEO plans to do this. Whose plan would it be? Who would own the investments held in connection with the plan? Would the plan document be in the form of a multiple employer plan? Do you have a detailed proposal as to how the PEO plans to proceed? Are they administering other 457(b) plans? What does the proposed contract from the PEO say about the plan?

It is possible for a PEO to do this right, but not in the way, or even using the same terminology, normally seen in a PEO environment. Even if you answer the questions above in detail, the mostly likely result here will be a recommendation that you hire someone with 457(b) expertise to review the proposal for you.

The downside for failing 457(b) is that the plan become subject to 457(f) and 409A. This can be very painful.

Tom Geer