Question 2: Suppose Recipient leases all its employees, other than its owner, from ABC Staffing Firm. ABC has a 401(k) plan which covers the workers leased by Recipient. Recipient wants to set up a money purchase pension plan. Assuming these workers are leased employees, can Recipient offset the contributions and deferrals to the ABC 401(k) plan?
Answer: If the workers are leased employees, then yes it can. 414(n) specifically provides that contributions by the leasing organization are deemed made by the recipient.

However, the real issue here is whether the workers are the common law employees of the recipient (as is so frequently the case). If they are then:

1. They are not leased employees; and
2. There is no authority for making the offset

In fact, to go a step further, if the staffing firm is not the common law employer, then the staffing firm plan would not be qualified because it would violate the exclusive benefit rule. Offsetting contributions made to a disqualified plan is not recommended!

The issue of whether the leasing organization or the recipient is the employer is discussed at length at Q 4:6 - 17 of my new 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.