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Question 247: If leased employees are represented by a collective bargaining unit, does the recipient client get to exclude them when doing its coverage test under IRC 410(b)? If not, it would be at the mercy of a union that bargained for pay instead of benefits because it would end up paying twice for the services. But I can't read the Code to say that the exclusion applies, because the "employer" (client) wasn't part of the bargaining process. | ||
Answer: You've put your finger on a thorny issue, although I see it somewhat differently. Mr. Holland did not even raise the question you did. He did not say, "Of course, even if the agreement were valid, how could the recipient take advantage of it?" Let's take a look at that question. We'll turn to the regulations on collective bargaining:
Does each employer which intends to make use of the 410(b)(3)(A) have to be a signatory party to the collective bargaining agreement? I see no such requirement in the regulations. In other words, assume a bona fide collective bargaining agreement said something to the effect that, "Employee representatives and the employers signing this agreement have entered into good faith bargaining regarding retirement benefits, and the employees, in return for higher compensation, have waived their right to be covered under any retirement plan maintained by the employers or by any company which leases worksite employees from the employers." I see no reason under the Code and regulations why a recipient of a leased employee under IRC 414(n) could not treat such a worker as an excludable union employee. But in a staffing firm situation first we must address the question of whether the agreement was entered into with one or more employers of the workers. If the staffing firm is not the common law employer of its workers-- most are not-- and instead the staffing firm is the only "employer" signator to the agreement, then it is not a valid collective bargaining agreement under IRC 7701(a)(46). For a complete discussion of the employer status of staffing firms, see chapter 4 of my book, Who's the Employer. Subscribers to the web edition can click here to access that chapter.
Of course, a CO/recipient which is concerned about the issue can simply find a staffing firm which is not covered by such an agreement, and which offers lower wages as a result. I will be discussing leased employees at two upcoming conferences. The first is ASPA's Los Angeles Benefits Conference; there I hope to be joined on the podium by Richard Wickersham of the IRS. The second is Corbel's Advanced Pension Conference in Orlando, Feb. 12-14, 2003. At that conference I will be discussing how to analyze controlled group and affiliated service group situations, as well as new developments in the 401(k) world. |
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.
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