Subscribe (Free) to
Daily or Weekly Newsletters
Post a Job

Featured Jobs

Site Manager / Senior Administrator

Nicholas Pension Consultants
(Remote / AZ / ID / NM / NV / UT)

Nicholas Pension Consultants logo

Pension Administrator

(Remote / Phoenix AZ)

MGKS logo

DC Administrator

United Benefit Pensions Inc.
(Remote / Melville NY)

United Benefit Pensions Inc. logo

Manager - Defined Contribution Plans

M2B Retirement Consulting LLC
(Remote / Wexford PA)

M2B Retirement Consulting LLC logo

Plan Administrator Consultant

Jocelyn Pension Consulting
(Remote / Boulder CO)

Jocelyn Pension Consulting logo

Director of Pension Administration

Primark Benefits
(Remote / San Mateo CA)

Primark Benefits logo

Compliance Specialist II



401(k) Retirement Plan Administrator

Midwest TPA with Remote Workforce
(Remote / Beachwood OH)

Compliance Analyst - 401(k) Administration

Ubiquity Retirement + Savings
(Remote / San Francisco CA)

Ubiquity Retirement + Savings logo

Retirement Plan Administrator

CMC Pension Professionals

CMC Pension Professionals logo

Chief Pension Actuary

Loren D. Stark Company

Loren D. Stark Company logo

Retirement Plan Administrator

Hicks Pension Services

Hicks Pension Services logo

Benefits Supervisor

NFL Player Benefit Office
(Baltimore MD)

NFL Player Benefit Office logo

Plan Administrator

Aimpoint Pension
(Remote / Pompano Beach FL)

Aimpoint Pension logo

DB/DC Administrator

Primark Benefits
(Remote / San Mateo CA)

Primark Benefits logo

Retirement Plan Relationship Manager – DB or DC Focus

Trinity Pension Consultants
(Remote / Akron OH / AL / IN / KY / MO / TN)

Trinity Pension Consultants logo

Retirement Plan Administrator

Hessel & Associates, LLC
(Remote / IL)

Hessel & Associates, LLC logo

Senior Defined Contribution Account Manager

Nova 401(k) Associates

Nova 401(k) Associates logo

Enrolled Actuary

Loren D. Stark Company

Loren D. Stark Company logo

Distribution \ Loan Clerk

Retirement, LLC
(Remote / Oklahoma City OK)

Retirement, LLC logo

Retirement Plan Administrator

Nicholas Pension Consultants
(Remote / Rancho Cordova CA / Corona CA)

Nicholas Pension Consultants logo

Junior Implementation Specialist - 401(k) Administration

Ubiquity Retirement + Savings
(Remote / San Francisco CA)

Ubiquity Retirement + Savings logo

View More Employee Benefits Jobs

Free Newsletters

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Employee Status in PEO Multiple Employer Plan

(Posted May 4, 2002)

Question 169: If a PEO adopts a multiple employer retirement plan in accordance with Rev. Proc. 2002-21, does that resolve all of the "Who's the Employer" issues in the arrangement?

Answer: Not at all. Indeed, this is one of the real challenges of a multiple employer plan situation. In some respects Rev. Proc. 2002-21 compounds the problem!

For years, conservative staffing firms have used multiple employer plans, such as those authorized in the Rev. Proc., as a means of insulating their plans from challenges based on the "exclusive benefit rule." The theory is, "Either we're the employer or you are; we may not be sure which one of us is, but one of us has to be. With a multiple employer plan, we won't need to worry about the exclusive benefit rule."

That theory is absolutely valid, which is why the IRS is pushing PEOs to move to multiple employer plans. But most testing in such a plan is performed on an employer-by-employer basis. For example, if the multiple employer plan has a 401(k) feature (as most PEO plans seem to have), each employer separately calculates the ADP and ACP tests for its own employees. The same is true of coverage and other nondiscrimination testing.

Thus, using a multiple employer plan does not eliminate the need to know who's the employer. It simply eliminates one of the consequences (an exclusive benefit rule violation) of guessing wrong.

The Rev. Proc. gives no guidance on the employee status issue. It studiously avoids the issue, in fact. It merely mandates that a PEO wishing to maintain a plan covering "Worksite Employees" must convert to a multiple employer format.

It also adds that the plan may not accept contributions from (and presumably may not make contributions for) a "Worksite Employee" whose "Client Organization" (CO)-- the recipient of the worker's services-- does not cosponsor the plan. Therein lies the rub. The term Worksite Employee, as defined in the Rev. Proc., refers simply to a worker who is performing services for a CO pursuant to an arrangement with the PEO. Thus, the term is not limited to employees who are, in fact, common law employees of the CO, but may include common law employees of the PEO.

For example, consider a staffing firm that handles both "permatemps" and true temporary employees. In my view, workers permanently assigned to a single company are not likely to be the common law employees of the staffing firm/PEO, but the temps who spend one week here and another week there almost surely are. However, under the Rev. Proc., the PEO cannot cover the temps under a plan unless the CO that happens to be using them this week cosponsors the plan. But those temps are the common law employees of the PEO and hence will have a negative impact on the PEO's coverage testing.

This is just one of the issues that the IRS must consider as it moves forward with this important initiative. There are many others. Because of the complexity of the issue, and the comments and questions I have received, I have reorganized and expanded my coverage of Rev. Proc. 2002-21 on my Who's the Employer website. Each section explaining the Rev. Proc. now includes citations to it so you can easily find the original material. The following pages are available:

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.

Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2022, Inc.