Multiple employer 401(k) plan question

[bzorc]

I have a client who is interested in setting up a multiple employer 401(k) plan (not a multiemployer!). In essence, what they want to do is have one very standardized document that any number of small companies could adopt if they were interested in maintaining a qualified plan for their employees (most of the companies that might adopt this plan would only have in the range of 5-10 employees). If the employer could not agree to the terms of the document (very basis, such as a stated matching formula, standard eligiblity and vesting, no loans, no hardships), they would not be allowed to adopt the plan. The investments would be done on an individual participant level through a mutual fund or annuity company.

Has anybody ever encountered one of these? I read a thread dated back in November of 1999, but would like more information. How would this be administered? I have filed 5500's for multiple employer plans in the past, so that is not the concern, but how to administer and test the individual companies is.

Thanks for any responses.

[KIP KRAUS]

I’m not sure you can set up a multiemployer 401(k) plan for employers who are not part of a controlled group of corporations.

[Steve72]

Kip:

If you have a cite for that, I'd be most appreciative.

[alanm]

The cite is section 413c. I have many multiple employer plans, see http://www.slavic.net under compliance for details on how to operate one.

[Steve72]

Sorry, I'd keep using the dunce cap, but it would get redundant.

I do not see a reference in 413© that says that the employers must be part of a controlled group. 1.413(a)(2)(ii) does say you count all members of controlled group or businesses under common control as separate employers, but doesn't require that the sponsoring employers fall into either category.

Again, I apologize, this may simply be a case of my inexperience, but any feedback would be appreciated.

[Guest Kevin Plymyer]

According to the 401(k) Answer Book a Multiple-Employer plan is a plan that is maintained by two or more employers that are not members of the same controlled group or affiliated service group and that benefits only non-collective bargaining employees is subdivided into as many plans as there are employers maintaining the plan. I hope this helps.

[Steve72]

My fault. As is probably apparent from my last post, I misread Kip's response (and sent myself into a panic). The dunce cap is looking more and more suitable.

[KJohnson]

You can have a multiple employer 401(k) plan, you simply cannot get a opinion letter for a prototype document see Revenue Procedure 2000-20.

That said, I have seen regional prototypes that have a multiple employer addendum as an option. I think the only implication is that you don't get the reduced user fee for a prototype document but have to pay the ordinary fee for a multiple employer plan which varies with the number of adopting employers.

[KIP KRAUS]

Sorry folks, I meant to say multiple employer in my original post. However, I didn't know employers were allowed to do this.

Now, a question for KJohnson. If you can't get an opinion letter is the arrangement eligible for tax favored treatment under Section 401(k)?

[KJohnson]

You can get a determination letter for the Plan.

You just can't use the opinion letter for the prototype for a reduced user fee

[alanm]

To get a determination letter issued in the name of each

adopting employer in the multiple plan you file a 5300 with a Schedule Q for the sponsor's employees and a Demo 4 for each adopting company. The Fee for each Demo 4 attached is $200.

[Bob R]

As mentioned before, IRC Section 413© permits unrelated employers to adopt the same plan. That code section states that the exclusive benefit rule will not be violated and that all service with all entities adopting the plan will count.

Also, as pointed out, you can't have one through a prototype. It is considered an individually designed plan so if you want a determination letter, you must file Form 5300. The user fee varies based on the number of employers that will be adopting the plan.

As far as reporting, only one Form 5500 needs to be filed for the entire plan, but separate schedules are needed for certain portions of the form. (Prior to the 1999 forms, a separate Form 5500 was required for each of the employers adopting the plan.)

As far as nondiscrimination testing, each company must run the applicable tests (e.g., 410(B) and ADP/ACP tests) separately.

Lastly, if this is set up for a leasing organization, you get into another set of issues due to IRC Section 414(n). For example, that section provides that benefits providing by the leasing company are deemed to be provided by the recipient employer. Thus, deferrals of the leased employees might be tested both in the leasing orgs adp test and in the recipient employer's adp test.