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Question 173: With regard to a PEO "single employer" plan, does the new revenue procedure provide any relief from possible violaitons of 410(b), ADP/ACP and the like? Most of it deals with the exclusive benefit rule but there is a special rule for terminating plans in Section 4.03; if a single employer PEO plan terminates, does it get a complete pass on all of these other compliance issues? |
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Answer: This is one of the most awkward parts of Rev. Proc. 2002-21, and I allude to it in Q&A 166.
That doesn't amount to a free pass, however. It simply says, in effect, that if you have been testing the plan hitherto as though the Worksite Employees were employees of the PEO, you don't need to rerun those tests for purposes of determining whether a terminating PEO plan or spinoff plan is qualified. You are correct; there is no comparable clause for a PEO that chooses to convert its plan to a multiple employer plan. I give a detailed example of why this is a problem in a multiple employer plan in Q&A 165. Continuing that example, if that same employer were to terminate its plan instead of converting to a multiple employer plan, there would be no 410(b) issue. The terminating plan would be able to rely on Section 4.03 to insulate it from liability so long as it complied with the Rev. Proc. |
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.
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