Who's the Employer?

Answer: You have put your finger on several important problems with this arrangement. The first problem is summarized nicely by the quotation marks you put around "leases."

We return to the question, "Who is the common law employer?"

If it is XYZ Staffing, then both firms can cover the workers and they are true leased employees. If it is ABC, and XYZ Staffing is litle more than a glorified payroll service, then XYZ Staffing cannot cover the workers XYZ treats them as true common law employees.

Given the facts that (1) all the rank and file is leased; (2) even the president is leased, who surely isn't taking direction from XYZ Staffing; and (3) ABC has the power to move all the employees to a new firm, it certainly appears that ABC is the employer.

If ABC is the employer, then:

1. XYZ Staffing's plan should be disqualified for violating the exclusive benefit rule.
   
   
2. Nothing at all requires ABC to take XYZ Staffing into account.
   
   
3. XYZ Staffing's plan is fine just as it is.

1. XYZ Staffing's plan is fine.
   
   
2. Nothing at all requires XYZ Staffing to take ABC's plan into account.
   
   
3. For purposes of ABC's plan, it is deemed to have made all contributions that XYZ Staffing made. This is for all purposes listed in 414(n)(3) and IRS Notice 84-11. Interestingly, Section 414(n)(3) does not list IRC 404 as one of the provisions to which the leased employee rules were to be applied. That deficit is corrected in Notice 84-11. Hence, in determining the 404 limits for ABC, it is as though it was the sponsor of both plans.
   
   
4. Of course, the same reasoning applies to IRC 415 provisions, which ABC must also apply on an aggregate basis (while XYZ Staffing looks only to its own plan).

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