PEO

I was recently informed my client "switched to a PEO in December."

I recall this is something like outsourcing.

I think the PEO is the "employer" but wouldn't I use the client's EIN?

I would assume this is just another way AP or PayChex can "offer" their 401(k) administration to the client.

PEO stands for "Professional Employer Organization", industry jargon for a particular form of HR outsourcing. At Insperity we refer to the relationship as co-employment. This is an IRS construct that permits the service provider to accept responsibility as the administrative employer of record for things such as payroll taxes, worker's comp, and benefit plan sponsorship, including 401k at times.

If the client chooses to participate in Insperity's multiple employer plan, they no longer have responsibility for administration or compliance, and there can be cost savings as well. Most clients choose this option for simplicity since the plan is integrated to payroll. 

Alternatively the client may remain plan sponsor, with Insperity as recordkeeper and administrator. With this option the client may retain their financial advisor and there is greater flexibility over plan design. 

If your client kept their existing 401k, they would remain as plan sponsor under their own tax ID even as the employees are paid under the tax ID of the PEO.

There is also a third option that most (but not all) PEOs allow - a completely separate 401k plan with an outside recordkeeper, custodian, and TPA. Just because the PEO is a co-employer does not mandate that you use their bundled 401k program.

On 3/13/2024 at 1:26 PM, zac-mutrux said:

PEO stands for "Professional Employer Organization", industry jargon for a particular form of HR outsourcing. At Insperity we refer to the relationship as co-employment. This is an IRS construct that permits the service provider to accept responsibility as the administrative employer of record for things such as payroll taxes, worker's comp, and benefit plan sponsorship, including 401k at times.

If the client chooses to participate in Insperity's multiple employer plan, they no longer have responsibility for administration or compliance, and there can be cost savings as well. Most clients choose this option for simplicity since the plan is integrated to payroll. 

Alternatively the client may remain plan sponsor, with Insperity as recordkeeper and administrator. With this option the client may retain their financial advisor and there is greater flexibility over plan design. 

If your client kept their existing 401k, they would remain as plan sponsor under their own tax ID even as the employees are paid under the tax ID of the PEO.

If you wouldn't mind, I have a question with respect to your final sentence as it relates to the client's existing 401k plan and eligible Compensation to be used:

If the client kept their existing 401k Plan (even if only for the month of December), would the wages paid by the PEO under the PEO's tax ID for the month of December be included when computing the client's existing it is con401k Plan's 2023 contributions  - i.e. how are PEO paid wages considered "Compensation" for purposes of the client's existing plan? And assuming PEO paid wages are considered "Compensation" for the existing 401k plan, wouldn't the employees' December deferrals then be deposited into the client's existing 401k Plan, too?  Thank you.