Who's the Employer?

Answer: Excellent question. I'm going to get hypertechnical in my response. Follow me down the path, though, and I think and hope it will make sense by the end.

Suppose back in 1999 a PEO set up a "safe harbor" money purchase pension plan, providing a fully vested 10% contribution for all worksite employees on their payroll. Compare that to the doctor next door, who also set up a 10% money purchase plan, fully vested, covering his employees. What's the difference? The doctor is using his own money to provide the pensions. But the PEO isn't. Rather, it is charging its clients for the pension money as a part of the PEO's fees, plus some overhead and profit. The PEO might pay the worker $10/hour, but it charges its client $16/hour (for example) out of which the PEO covers not only the worker's paycheck, but also his health and retirement benefits, unemployment and worker's compensation insurance, payroll taxes, pay for the various paperwork processing services that the PEO performs, and provides a profit for the PEO's owners. In other words, regardless of who puts the money in the plan, the Client Organization is the real source of the funds. If the client stops paying them, those workers aren't going to see very many more retirement contributions.

Now let's move to the situation you describe. The PEO is not the employer; the CO is. The PEO has gone to a multiple employer plan format because it is a violation of the exclusive benefit rule for the PEO to cover the workers directly. As a part of that format:

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