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Answers are provided by S. Derrin Watson, JD, APM
Rev. Proc. 2002-21 Deadlines
(Posted May 8, 2002)
Question 177: If a PEO wants to terminate its plan now, does it need to wait until 2003 in order to comply with Rev. Proc. 2002-21?
Answer: No. Rev. Proc. 2002-21 sets two PEO deadlines:
By the PEO Decision date, PEOs must send a notice to their COs informing them of the PEO's choice either to terminate the PEO's plan or to convert it to a multiple employer plan. The PEO also must adopt a termination resolution or the amendment to convert the plan to multiple employer status. The termination must be effective no later than the Compliance Date. The multiple employer plan amendments must be effective no later than the day after the Compliance Date (January 1, 2004 for a calendar year plan).
- The PEO Decision Date is 120 days after the start of the 2003 plan year. For calendar year plans, this is May 2, 2003.
- The Compliance Date is the last day of the 2003 plan year.
Assets for employees whose CO is not participating in the converted multiple employer plan (if any) must be transferred to the CO's own plans or to the spinoff plan (in accordance with CO elections), no later than the Compliance Date. The spinoff plan must be terminated by the Compliance Date and assets distributed to participants as soon as possible thereafter. Click here for additional details on these requirements.
These deadlines are the latest date by which these actions must be accomplished. If a PEO wishes to terminate its plan today or adopt a multiple employer plan today, it can. It would need to send the required notice and comply with the instructions from its Client Organizations, but it could easily do so before the end of the 2002 plan year. It would be unwise to terminate the plan now without giving the notice and otherwise complying with the Rev. Proc.
For a PEO wishing to terminate its plan now, I recommend that it wait at least a month, to give the IRS time to issue any additional guidance or clarifications regarding the Rev. Proc. That would still leave plenty of time to let the termination or conversion be effective by the last day of the 2002 plan year, and to let the COs decide their course of action.
For more on this Rev. Proc., see my detailed discussion. For additional discussion on why PEOs are at risk for exclusive benefit violations, and need the protection of this Rev Proc, see Chapter 4 of my book, Who's the Employer.
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