Subscribe Now!
Free Daily News, Jobs, Webcasts, Discussions
Post and Distribute
Your Jobs
ARPA News
ARPA Webcasts

Featured Jobs

401(k) Implementation Manager

Human Interest
(Telecommute / San Francisco CA)

Human Interest logo

Defined Contribution Analyst

The Benefit Practice
(Stamford CT / Maitland FL)

The Benefit Practice logo

DB/DC Administrator

Primark Benefits
(Telecommute / Burlingame CA)

Primark Benefits logo

Director of 401(k) Implementation, Core

Human Interest
(Telecommute / Mill Valley CA)

Human Interest logo

Retirement Plan Administrator

Premier Plan Consultants
(Telecommute / San Diego CA)

Premier Plan Consultants logo

Manager, 5500 Team

401K Generation
(Altamonte Springs FL)

401K Generation logo

Product Support Consultant

ftwilliam.com part of Wolters Kluwer Legal & Regulatory
(Telecommute)

ftwilliam.com part of Wolters Kluwer Legal & Regulatory logo

401(k) Consultant

TPS Group
(Telecommute / North Haven CT)

TPS Group logo

Defined Benefit Retirement Plan Administrator

Benefit Associates, Inc.
(Telecommute / Huntington Beach CA)

Benefit Associates, Inc. logo

DC Administrator

MGKS
(Telecommute / Phoenix AZ)

MGKS logo

Employee Benefits/Health and Welfare Attorney

Miller Johnson
(Telecommute / Grand Rapids MI / Kalamazoo MI / Detroit MI)

Miller Johnson logo

Director of Finance

NYCDC of Carpenters Benefit Funds
(New York NY)

Pension Plan Administrator

DeMars Pension Consulting Services, Inc.
(Overland Park KS)

DeMars Pension Consulting Services, Inc. logo

Retirement Plan Consultant / Relationship Manager

Associated Pension Consultants
(Chico CA / Sacramento CA)

Associated Pension Consultants logo

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

Owner as Leased Employee

(Posted December 19, 2000)

Question 68: A limited liability company (LLC) in Arizona is treated as sole proprietor for tax purposes, all his employees (about 40) including himself are leased employees through a leasing company (a "PEO"). Most of the employees including the owner participate in the leasing company-sponsored 401(k) plan. Can the owner set up and participate in his own separate qualified plan, becuase he has profits to him through the LLC?

Answer:

  1. Let's start with the notion that the owner almost undoubtedly is not an employee of the leasing company. That was established back in the '80s, under the Professional and Executive Leasing court case. To say that the leasing company is supervising and directing and controlling their client is utter nonsense.

  2. Unless his LLC is co-sponsoring the leasing company's plan, therefore, that plan almost undoubtedly violates the exclusive benefit rule and is not qualified.

  3. Where the owner is "leased," that lends credence to the notion that the leasing company is no more than a bookkeeping service and has no genuine employment relationship with anyone, including the staff.

  4. Case after case has found that the staff are common law employees of the recipient, not the staffing firm.

  5. Can the LLC set up a qualified plan for its employees? Of course it can! And who are its employees? The owner and all the people working there. You can exclude some of them if you can still satisfy IRC 410(b) after the exclusion.

  6. Can you take into account the contributions provided in the 401(k) set up by the PEO? That depends. If the LLC co-sponsors the plan, then yes you can. If not, and the workers are common law employees of the LLC (and they likely are) then there is nothing which allows you to offset the benefits provided by the LLC's disqualified plan.


These issues are discussed in detail in Chapter 4 of my book, Who's the Employer?.


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)

© 2021 BenefitsLink.com, Inc.