Blue Ridge ESOP Associates
(Charlottesville VA / Telecommute)
Retirement Plan Consultant
Cetera Retirement Plan Specialists
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|Question 204: IRC 414(n) allows leased employees to be disregarded for various IRC rules if these individuals are covered under a safe harbor plan. How will Rev. Proc. 2002-21 affect these plans?|
Answer: There will be no direct effect. But indirectly, Rev. Proc. 2002-21 probably will put an end to such safe harbor plans. That might not be a bad thing.
Technically, Rev. Proc. 2002-21 does not change the rules relating to leased employees-- just the rules for PEOs. Therefore, it does not change the rules for safe harbor plans. However, it does say that if a PEO maintaining a plan covering Worksite Employees wishes for the plan to be rely on determination letters after 2003, it has to be a multiple employer plan cosponsored by the recipient/client organization. So the recipient, instead of being able to forget about the workers because they are in a safe harbor plan, will instead be cosponsoring the plan.
Click here for more about the administration of multiple employer plans.
Also, you can review detailed coverage of the Rev. Proc. at my web site. Finally, I should note that I discuss safe harbor plans with detailed examples in chapter 4 of my book, Who's the Employer.
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.