Who's the Employer

A Guide to Employee and Aggregation Issues Affecting Qualified Plans

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Rev Proc 2002-21 Definitions

The Rev Proc defines several important terms which are critical to understanding it. Amazingly, it leaves undefined its most important term, PEO. It is obvious from the Rev Proc that all staffing firms are considered as PEO's, no matter how the style themselves. However, the Rev Proc leaves open the question of whether hospitals, for example, could be considered a PEO subject to the Rev Proc if they provide workers for nearby clinics. Here are the key terms the Rev Proc does define:

bulletClient Organization (CO). This is the firm that uses the PEO to provide staffing services for some or all of their workers. It doesn't matter how many or how few workers the PEO provides to the CO. In the language of IRC 414(n), the CO is a recipient and the PEO a leasing organization. (6.05.)

bulletWorksite Employees. These are the workers the PEO provides to the CO. If the CO/recipient were not the common law employer of these workers, and the workers met the other requirements of IRC 414(n), they would be leased employees.  True temporary employees, who are likely the common law employees of the PEO, would be classified as Worksite Employees, as well as workers permanently assigned to a particular CO. (6.04)

bulletPEO Retirement Plan. This is a defined contribution plan (such as a 401(k) plan or profit sharing plan) intended to satisfy IRC 401 or 403(a), sponsored solely by a PEO and covering Worksite Employees. Multiple employer plans and defined benefit plans are not covered by the Rev Proc. (6.01)

bulletMultiple Employer Retirement Plan. This is a defined contribution plan under IRC 401 or 403(a) and IRC 413(c) cosponsored by the PEO and by all CO's with participating employees.  Click here for more information on the operation of such plans. (6.02)

bulletPEO Decision Date. This is 120 days after the first day of the PEO's plan year beginning after 12/31/02. For a calendar year plan, this is May 2, 2003. There are several things the PEO must do by this date.  (4.02(2).)

bulletCompliance Date. The last day of the plan year beginning in 2003. Essentially everything has to be completed by this date for the PEO to have relief.  (4.01(3).)

bulletEffective Date. May 13, 2002. (9.)  Plans adopted after this date cannot use this Rev Proc. (4.01.)

bulletSpinoff Retirement Plan.  This is a plan set up to hold the assets and liabilities for Worksite Employees whose CO chose, through action or inaction, to have benefits distributed to participants.  It is to be terminated prior to the Compliance Date and assets distributed as soon as possible.  (6.03.)

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Last Revised 11/02/02


Copyright 2005, S. Derrin Watson.  All rights reserved.