Leased Employees Change of Status

[emmetttrudy]

The owners of Company A sponsor a 401k Plan, which excludes leased employees, and also own 100% of Company B. Company B has approximately 10 employees who are leased through a management company (i.e. not employed directly by Company B). Company B terminates its relationship with the management company and hires the 10 employees directly on 10/1/2011. Do these 10 employees now become eligible for the plan sponsored by Company A? If so, are they considered hired on 10/1/2011 and must meet the eligiblity requirements, or does their service as a leased employee count for eligibility?

[ETA Consulting LLC]

Your fact pattern isn't clear. Even though A and B are related, what does Company B's employees have to do with A's plan?

Assuming A's plan does cover B's employees (all related employers are part of the plan), then the 10 employees would be treated as new hires as of 10/1/2011 and would be required to satisfy the age and service requirements.

UNLESS, there is a predecessor service provision in the document crediting eligibility service for the time an individual worked at the leasing organization performing services for the sponsor. Without such provision, really not way you could; since those 10 employees were common law employees of the management company prior to 10/1/2011.

Good Luck!

[Jim Chad]

FWIW I thought that the time as a leased employee would count toward eligibility at this employer.

We always "try out" a receptionist by hiring form Victor temps. I researched this a while back and came to the conclusion that the 90 days she was an employee of victor temps has to be counted.

Can anyone else shed light on this?

[Lou S.]

Jim I agree with you.

We don't work much with leased employees but when last I researched it I came to the same conculsion under §414(n)(4)(B) that you had to count all service back to when you originally hired them through the leasing company for eligibility and vesting.

I think in our document they would be treated the same as going from an ineligible class of employee to eligible class of employee when you formally hire them away from the leasing company in much the same way as someone who is an excluded union employee but becomes non-union.

Anybody disagree with it?

[emmetttrudy]

Your fact pattern isn't clear. Even though A and B are related, what does Company B's employees have to do with A's plan?

Assuming A's plan does cover B's employees (all related employers are part of the plan), then the 10 employees would be treated as new hires as of 10/1/2011 and would be required to satisfy the age and service requirements.

UNLESS, there is a predecessor service provision in the document crediting eligibility service for the time an individual worked at the leasing organization performing services for the sponsor. Without such provision, really not way you could; since those 10 employees were common law employees of the management company prior to 10/1/2011.

Good Luck!

The owners of Company A also own 100% of Company B, so they are a related employer. But does that automatically mean they must be covered by Company A's plan? Perhaps they arent required to be covered and the eligibility question isn't applicable.

[Lou S.]

Your fact pattern isn't clear. Even though A and B are related, what does Company B's employees have to do with A's plan?

Assuming A's plan does cover B's employees (all related employers are part of the plan), then the 10 employees would be treated as new hires as of 10/1/2011 and would be required to satisfy the age and service requirements.

UNLESS, there is a predecessor service provision in the document crediting eligibility service for the time an individual worked at the leasing organization performing services for the sponsor. Without such provision, really not way you could; since those 10 employees were common law employees of the management company prior to 10/1/2011.

Good Luck!

The owners of Company A also own 100% of Company B, so they are a related employer. But does that automatically mean they must be covered by Company A's plan? Perhaps they arent required to be covered and the eligibility question isn't applicable.

Company A's Plan does not have to cover the employees of Company B. But Copmany A's plan will need to pass testing with considering Company B's employees as non-benefiting since it is a controlled group if it doesn't cover the employees.

[ETA Consulting LLC]

FWIW I thought that the time as a leased employee would count toward eligibility at this employer.

We always "try out" a receptionist by hiring form Victor temps. I researched this a while back and came to the conclusion that the 90 days she was an employee of victor temps has to be counted.

Can anyone else shed light on this?

You are correct, but remember to incorporate the definition of "LEASED EMPLOYEE" into your first sentence. So, your asking:

FWIW I thought that the time an "individual who has performed services for a recipient on substantially a full time basis for a year" would count toward eligibility at the employer. Until you actually become a leased employee, there's nothing to count.

We agree, but it's a moot point until the individual actually meets the definition of "leased employee".

Good Luck!