2 CGs and staffing company

[shERPA]

A and B are a CG (100% owned by one individual), they want to establish a plan, all employees of both entities will be covered.

A employs its staff thru a staffing company C.   C is 50% owned by the owner of A and B (other 50% unrelated ownership), so it is not part of the A&B CG.

C has absolutely no other functions.  It pays A's staff and gets reimbursed by A, that's it.  The employees are hired, fired, directed, controlled. report to, and in all respects managed by A.

It seems to me that under RPs 2002-21 and 2003-86 that these C employees are common law employees of A only.  In fact, if C sponsored a plan and wanted to cover them, it could not do so on its own.  It would have to set up a multiple employer plan with A adopting to comply with the RPs.  

Question 1 - Do you agree so far?

Now there is another company, D, that is a CG with C (80% ownership overlap by 2 owners).  D has employees and its own 401(k) plan.

It seems to me that since the "employees" paid thru C on behalf of A should be considered common law employees of A only, that A and B can proceed with their plan without regard to D.  It also seems that D can maintain its 4k plan without regard to C, as C has no common-law employees.

Question 2 - Do you agree with this?

Any other thoughts?   For the record none of these are service orgs.

Thanks. 

[Bill Presson]

I do agree, but 2 things come to mind.

1. What is the point of company C? The only one benefitting from that arrangement is the 50% unrelated owner of company C.

2. Heavy stuff for a retired person.

[shERPA]

Thanks Bill.  Yeah I’m really trying to be retired, and being fairly successful at it.  Just trying to wrap up a few things that started last year. 

As explained to me they originally had other plans for company C, but so far those plans have not come to fruition and they don’t expect this to change for a while.  It’s possible C will just go away, or they just move the ees back to A for payroll, which would clean this up nicely.  But we’re dealing with 2021 right now so we have to deal with it as it was.