Cross tested 401k with leased employees

[dmb]

Two plans. A 401k which covers only owners and a cross tested plan which covers owners and all employees, the non-owners are all from a leasing company which sponsors it's own 401k. For average benefits testing should the non-owner employees' 401k contributions to the leasing company plan be included in the sponsoring employer's cross-tested plan??

[Guest]

maybe. I just never understood some of the rules about leased employees, but here goes.

This is from the ERISA Outline Book, since I have no clue where to look in the regs!

"A leased employee is treated as an employee for purposes of applying the nondiscriination tests under IRC 401(a)(4), 401(k) and 401(m)...the coverage rules under 410(B)....

Contributions and benefits under leasing organization's plan treated as provided by recipient if attributable to services provided by the recipient (see 414(n)(1)(B)) (item 1a on page 1.179 of the ERISA Outline book 5th edition) an example is given along these lines: if leasing organization provides a 3% profit sharing contribution, and the leased employees services for that year were performed soley for Company X, Company X may take credit for the 3% contribution.

if the leasing company provides a safe harbor plan, then the leased employees are NOT treated as employees, provided you can make use of the safe harbor exception.

e.g. the work force can not be more than 20% of the NHCE workforce. so, if the leasing company had a 10% money purcahse, which is the safe harbor, and company X provided a 15% profit sharing contribution, then if less than 20% of the NHCEs were leased, the leased ees are ignored. if more than 20% are leased, then you have to include them and put in 5% for them to make up the difference.

In your case, you indicated the leasing company had a 401(k), not a money purcahse, therefore no safe harbor, therefore my understanding would be that you get to include all the contributions. (again, from the ERISA Outline book,

you get to 'take credit for the elective deferrals made by the leased employees into the leasing organization's 401(k) plan' (item 3.a. on page 1.181 of the 5th edition)