PEO

[SSRRS]

Hi,

There is an existing DB Plan with the only participant being the owner. The Corp then hires an employee and wants to join a PEO. How dies this effect the existing DB Plan? Is the new employee really an employee of the Corp? Thank you. 

[Lou S.]

They are co-employers. The PEO just picks up some functions and legal responsibilities as the employer of record. Unless they do something with the DB Plan, the newly hired employee will enter the Plan under whatever eligibility the DB plan has in the document.  Hopefully it has some service requirement that is not immediate so you can make some recommendations before they become eligible. Likely they will have to cover the employee and all that entails or consider terminating the Plan before the employee becomes eligible.

[truphao]

just a thought since I have not had a chance to deal with that in practice.  If the original DB plan existed for 5 years, it might be possible to freeze the participation and not to allow this new hire in based on Secure Act (1.0 it is).  I am sure there are a lot of issues to think through but it might work.

[CuseFan]

19 hours ago, truphao said:

I am sure there are a lot of issues

You don't get a free pass - you still have to satisfy coverage and nondiscrimination, so you'll need a DC plan to be aggregated. You get more favorable testing parameters and gateway satisfaction when aggregating with the DC plan and you do get 401(a)(26) relief.