Subscribe Now!
Free Daily News, Jobs, Webcasts, Discussions
Post and Distribute
Your Jobs
ARPA Webcasts

Featured Jobs

401(k) Implementation Manager

Human Interest
(Telecommute / San Francisco CA)

Human Interest logo

Retirement Plan Administrator (Account Manager)

Kushner & Company
(Telecommute / Portage MI)

Kushner & Company logo

DC Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

Director of 401(k) Implementation, Core

Human Interest
(Telecommute / Mill Valley CA)

Human Interest logo

DB/DC Administrator

Primark Benefits
(Telecommute / Burlingame CA)

Primark Benefits logo

Retirement Plan Administrator

My Benefits, LLC
(Telecommute / Daphne AL / Atlantic Beach FL)

My Benefits, LLC logo

DC or DB Administrator

Farmer & Betts, Inc.
(Telecommute / Tacoma WA / Tualatin OR / Littleton CO)

Farmer & Betts, Inc. logo

Employee Benefits/Health and Welfare Attorney

Miller Johnson
(Telecommute / Grand Rapids MI / Kalamazoo MI / Detroit MI)

Miller Johnson logo

Retirement Plan Administrator

RSW & Associates
(CT / NJ / NY)

RSW & Associates logo

401(k) Consultant

TPS Group
(Telecommute / North Haven CT)

TPS Group logo

Retirement Plan Consultant / Relationship Manager

Associated Pension Consultants
(Chico CA / Sacramento CA)

Associated Pension Consultants logo

Plan Document Specialist

Jocelyn Pension Consulting
(Telecommute / Boulder CO / San Rafael CA)

Jocelyn Pension Consulting logo

Product Support Consultant part of Wolters Kluwer Legal & Regulatory
(Telecommute) part of Wolters Kluwer Legal & Regulatory logo

Retirement Plan Administrator

Bates & Company
(Telecommute / Winter Park FL)

Bates & Company logo

Director of Finance

NYCDC of Carpenters Benefit Funds
(New York NY)

DB Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

Free Newsletters

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

PEO to Client Plan

(Posted February 10, 2003)

Question 250: We have a client organization ("CO") terminating their relationship with a Professional Employer Organization ("PEO"). The company wishes to establish a new plan. But they wish to treat the new plan as a successor plan (resulting in a forced transfer of participant assets). Is this the proper treatment for the plan assets?

Answer: You did not mention whether this is a single or multiple employer plan. If it is a multiple employer plan, and the parties have concluded that the client is the true employer (a good bet) then this is obviously appropriate.

What happens if this is a single employer plan? Nothing specifically authorizes this action, but nothing prevents a spinoff of this nature. In fact, it is one of the end results specifically permitted by Rev. Proc. 2002-21.

Being the conservative fellow that I am, I'd suggest to the CO that it wait until it receives a Rev. Proc. 2002-21 notice from the PEO, indicate that it chooses to have balances transferred to its plan and provide documentation that (i) the new plan has a GUST letter, (ii) is entitled to reliance on a sponsor's letter, or (iii) has applied for a determination letter. That way, the CO has assurance that the IRS has "blessed" the procedure.

But note that Richard Wickersham of the IRS has emphasized that the Service is looking for substantial compliance with the revenue procedure, rather than slavish attention to detail. It strikes me that this type of transfer would certainly satisfy the IRS' requirements for substantial compliance, and I have difficulty imagining the IRS having a problem with it. Obviously, a spinoff would need to be authorized by the PEO's board of directors, or in another manner permitted in the plan document.

For more on Rev. Proc. 2002-21, see chapter 4 of my 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.

Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2021, Inc.