IRS Revenue Procedure
2002-21

Code Sec. 401



<<FULL TEXT>>

26 CFR 601.201: Rulings and determination letters
(Also, Part I, section 401; section 1.401(a)-2.)


REV. PROC. 2002-21

SECTION 1. INTRODUCTION

.01 INTRODUCTION. This revenue procedure describes steps that may be
taken to ensure the qualified status of defined contribution retirement
plans maintained by professional employer organizations (PEOs) for the
benefit of Worksite Employees. PEOs are also commonly known as employee
leasing organizations.

.02 POTENTIAL FOR PLAN DISQUALIFICATION. The employment relationship
between workers and the employer maintaining a plan is fundamental to
whether a plan is qualified under section 401(a) of the Internal Revenue
Code. The determination of whether an employment relationship exists
depends on the facts and circumstances of each particular case. If a
retirement plan provides benefits for individuals who are not employees of
the employer maintaining the plan, the plan does not satisfy the exclusive
benefit rule contained in section 401(a)(2), and therefore could be
disqualified.

03. RELIEF FROM DISQUALIFICATION OF PLAN. The Service recognizes the
complexity involved in the determination of whether a Worksite Employee is
the common law employee of the PEO or the client organization (CO), as
well as the need of the PEO, the CO, Worksite Employees, and plan
administrators for certainty in this area. Accordingly, this revenue
procedure provides a framework under which plans sponsored by PEOs will
not be treated as violating the exclusive benefit rule solely because they
provide benefits to Worksite Employees. Under the approach provided in
this revenue procedure, a PEO that maintains a defined contribution
retirement plan may establish a multiple employer plan that benefits
Worksite Employees providing services to COs. For PEOs that do not wish to
establish a multiple employer plan, the revenue procedure provides
transition rules under which the existing PEO plan will be treated as a
qualified plan if it is terminated by a specified date.


SECTION 2. PURPOSE

.01 IN GENERAL. The purpose of this revenue procedure is to provide
relief with respect to certain defined contribution retirement plans
maintained by a PEO ("PEO Retirement Plans") that benefit Worksite
Employees.

.02 SCOPE OF RELIEF. With regard to PEO Retirement Plans established
prior to May 13, 2002, if the requirements of section 5 are met, the
Service will not disqualify the PEO Retirement Plan solely on account of
an exclusive benefit rule violation under section 401(a)(2) for a plan
year beginning before the Compliance Date if that violation results from
the PEO Retirement Plan benefitting Worksite Employees who are not the
PEO's employees. Relief provided under this revenue procedure applies only
with respect to the PEO Retirement Plan for which relief is granted and
not to other plans maintained by a CO or the PEO.

.03 NO EFFECT ON OTHER LAW. The relief provided under this revenue
procedure with respect to the provisions of section 401(a) has no effect
on the rights of any party under any other law, including Title I of the
Employee Retirement Income Security Act of 1974 and other provisions of
the Internal Revenue Code.


SECTION 3. BACKGROUND

.01 IN GENERAL. An employee leasing arrangement typically involves the
interaction among three parties: the PEO, the CO, and the Worksite
Employees. In a typical situation, a PEO enters into an agreement with a
CO whereby employees become Worksite Employees and continue to provide
services to the CO.

.02 EMPLOYMENT RELATIONSHIP. The issue of whether a worker is an
employee of a particular entity for employment tax purposes is determined
by reference to section 3121(d), which incorporates the common law
definition of employee. The Supreme Court has also applied this common law
definition of employee for purposes of determining whether a worker is an
employee entitled to receive benefits under a retirement plan. See
Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992). Courts
have also found that common law factors are applicable to determine which
of two entities is the employer for purposes of retirement plans. The
critical issue in determining who is the employer of an individual is
which entity has the right to direct and control the individual performing
the services. If it is found that the CO, not the PEO, is the employer,
the plan maintained by a PEO that benefits Worksite Employees of the CO
would fail to satisfy the exclusive benefit rule. See Professional and
Executive Leasing, Inc. v. Commissioner, 89 T.C. 225 (1987), aff'd, 862
F.2d 751 (9th Cir. 1988).

.03 EXCLUSIVE BENEFIT RULE. Section 401(a)(2) provides that a trust
forming a part of a qualified pension, profit-sharing, or stock bonus plan
must be a trust established and maintained by an employer for the
exclusive benefit of that employer's employees and their beneficiaries
("exclusive benefit rule"). Therefore, a retirement plan that provides
benefits for individuals who are not employees of the employer maintaining
the plan (and who are not otherwise treated as employees under rules such
as those under section 414) violates the exclusive benefit rule and does
not satisfy the requirements of section 401(a).

.04 LEASED EMPLOYEES. Section 414(n) does not permit PEOs to maintain
plans for Worksite Employees who are not the common law employees of the
PEO. Section 414(n) deals with individuals who are not common law
employees of the entity for which they perform services ("recipient") but
who might have to be taken into account in determining whether a
retirement plan maintained by the recipient satisfies the requirements of
section 401(a). Notice 84-11 (1984-2 C.B. 469) provides questions and
answers relating to section 414(n). Section 414(n) addresses the
relationship between the recipient and the leased workers, but it does not
apply to situations in which a worker is the common law employee of the
recipient.

.05 MULTIPLE EMPLOYER PLAN. Section 413(c) provides rules for the
qualification of a plan maintained by more than one employer (i.e., a
"multiple employer plan"). Under section 413(c)(2), in determining whether
a multiple employer plan complies with the exclusive benefit rule, all
employees benefitting under the multiple employer plan are treated as the
employees of all employers who maintain the plan. Additionally, an
employee's service with all of the employers participating in the plan is
taken into account for purposes of vesting under section 411 and plan
participation under section 410(a). See section 413(c)(1) and (3).
Similarly, for purposes of the contribution and benefit limitations of
section 415, an employee's compensation from all employers participating
in the plan is taken into account. See section 1.415-1(e)(1) of the Income
Tax Regulations. Other rules apply separately to each participating
employer and its employees. For example, nondiscrimination testing under
section 401(a)(4) and section 401(k), and coverage testing under section
410(b), are performed separately for each employer maintaining the
multiple employer plan. See section 1.401(a)(4)-1(c)(4), section
1.413-2(a)(3)(ii) and section 1.401(k)-1(g)(11). Top-heavy requirements
under section 416 also apply separately to each employer. See section
1.416-1, Q&A G-2.


SECTION 4. RELIEF AVAILABLE

.01 NO DISQUALIFICATION OF PEO RETIREMENT PLAN. If a PEO has a PEO
Retirement Plan in existence on May 13, 2002, that benefits Worksite
Employees, section 5 provides the PEO with the option of either converting
the PEO Retirement Plan to a multiple employer plan or terminating the
plan. If a PEO timely satisfies the requirements of section 5, the Service
will not disqualify its PEO Retirement Plan solely on the grounds that the
plan violates or has violated the exclusive benefit rule for plan years
beginning before the Compliance Date by benefitting Worksite Employees who
are not the PEO's employees.

.02 EFFECTIVE DATES. (1) COMPLIANCE DATE. Except as specifically
provided, all remedial actions and other requirements in section 5 must be
completed by the Compliance Date. The Compliance Date is the last day of
the first plan year of the PEO Retirement Plan beginning on or after
January 1, 2003. For a calendar year plan, the Compliance Date is December
31, 2003.

(2) PEO DECISION DATE. The PEO Decision Date is the date by which the
PEO must take specified actions affirming its decision whether to
terminate the PEO Retirement Plan or maintain a multiple employer
retirement plan that benefits Worksite Employees. The PEO Decision Date is
the date that is 120 days after the first day of the plan year beginning
on or after January 1, 2003. For a calendar year plan, the PEO Decision
Date is May 2, 2003.


.03 PLAN TERMINATIONS. For the purpose of determining whether a PEO
Retirement Plan or Spinoff Retirement Plan satisfies the qualification
requirements in section 401(a) upon plan termination (as described in
section 5.06), Worksite Employees may be treated as if they were employees
of the PEO.


SECTION 5. REMEDIAL ACTION REQUIRED

.01 IN GENERAL. In order to obtain the relief provided in section 4,
the plan sponsor of a PEO Retirement Plan must either terminate the PEO
Retirement Plan in accordance with section 5.02, or convert the PEO
Retirement Plan into a multiple employer plan ("Multiple Employer
Retirement Plan") in accordance with section 5.03.

.02 TERMINATION OPTION. (1) TERMINATION OF PEO RETIREMENT PLAN. If a
PEO chooses to terminate a PEO Retirement Plan in accordance with this
section, the PEO must adopt a resolution of its board of directors (or, if
the PEO is not a corporation, it must take comparable binding action, such
as a partnership vote) on or before the PEO Decision Date, providing that
the plan will be terminated on or before the Compliance Date. After the
date of termination, all assets in the plan's related trust must be
distributed as soon as administratively feasible. See Rev. Rul. 89-87
(1989-2 C.B. 81). Consequently, the mere discontinuance of contributions
under the PEO Retirement Plan is not a termination of the plan and will
not satisfy the requirements of this section.

(2) NOTIFICATION OF COs. The PEO must provide notice of the options set
forth in section 5.02(3) to each CO that has Worksite Employees with
accrued benefits in the PEO Retirement Plan. The PEO must specify in the
notice the date by which each CO must notify the PEO of the option it
selects. This notice must be sent on or before the PEO Decision Date.

(3) CO OPTIONS. The PEO must provide each CO with all of the following
options:

(a) TRANSFER OF ASSETS AND LIABILITIES TO CO PLANS. The CO may choose
to have the assets and liabilities of the PEO Plan that are attributable
to Worksite Employees performing services for the CO transferred to a
retirement plan of the CO as provided in section 5.04(1). The transfer of
assets and liabilities attributable to Worksite Employees performing
services for the CO to the CO's plan must be completed on or before the
Compliance Date.

(b) SPINOFF OF ASSETS AND LIABILITIES TO A SEPARATE PLAN AND
TERMINATION OF THAT PLAN. The CO may choose to have the assets and
liabilities of the PEO Retirement Plan that are attributable to its
Worksite Employees spun off to a Spinoff Retirement Plan, which is then
terminated, as provided in section 5.04(2). The spinoff and termination
must be completed on or before the Compliance Date. Plan assets must be
distributed as soon as administratively feasible after the plan
termination date.


(4) CO DECISION AND IMPLEMENTATION. The CO must provide notice of the
selected option to the PEO by a date specified by the PEO. If a CO fails
to timely inform the PEO of the option it selected, the PEO must treat the
CO as having selected option 5.02(3)(b) (Spinoff and Termination). The PEO
must implement the choice made or deemed made by each CO on or before the
Compliance Date.

(5) DETERMINATION LETTER REQUEST. The PEO must request determination
letters on the termination of the PEO Retirement Plan and the Spinoff
Retirement Plan. See section 5.06 of this revenue procedure for further
information on determination letters on plan terminations.


.03 CONVERSION OPTION. (1) CONVERSION TO MULTIPLE EMPLOYER RETIREMENT
PLAN. A PEO may choose to convert the PEO Retirement Plan to a Multiple
Employer Retirement Plan, effective the first day of the first plan year
beginning after the Compliance Date. If the PEO chooses this option, the
PEO must satisfy the requirements of section 5.03(2) through (6). In
addition, the Multiple Employer Retirement Plan must be adopted by those
COs that wish to have Worksite Employees participate in the plan. To the
extent that a PEO Retirement Plan is converted into a Multiple Employer
Retirement Plan, assets and liabilities will remain in the plan and not be
distributed to participants.

(2) ADOPTION OF PLAN AMENDMENTS. The PEO must adopt plan amendments
necessary to convert the PEO Retirement Plan to a Multiple Employer
Retirement Plan on or before the PEO Decision Date. The effective date of
the plan amendments adopted by the PEO must be no later than the first day
of the first plan year beginning after the Compliance Date.

(3) NOTIFICATION OF COs. The PEO must provide notice of the options set
forth in section 5.03(4) to each CO that has Worksite Employees with
accrued benefits in the PEO Retirement Plan. The PEO must specify in the
notice the date by which each CO must notify the PEO of the option it
selects. This notice must be sent on or before the PEO Decision Date.

(4) CO OPTIONS. The PEO must provide each CO with all of the following
options:

(a) ADOPTION OF MULTIPLE EMPLOYER RETIREMENT PLAN. The CO may adopt the
Multiple Employer Retirement Plan. The CO must adopt the Multiple Employer
Retirement Plan by the first day of the first plan year beginning after
the Compliance Date (or any earlier date as may be specified by the PEO).
If a CO chooses this option, the Worksite Employees performing services
for the CO may participate in the Multiple Employer Retirement Plan after
its adoption by the CO without causing the plan to fail to satisfy the
exclusive benefit rule. If a CO has not adopted the Multiple Employer
Retirement Plan by the first day of the first plan year beginning after
the Compliance Date (or any earlier date as may be specified by the PEO),
the Multiple Employer Retirement Plan may not accept contributions after
the Compliance Date on behalf of the Worksite Employees performing
services for the CO. In that event, the assets and liabilities
attributable to the COs must be spun off as soon as administratively
feasible to a Spinoff Retirement Plan.

(b) TRANSFER OF ASSETS AND LIABILITIES TO CO PLANS. The CO may choose
to have the assets and liabilities of the PEO Retirement Plan that are
attributable to its Worksite Employees transferred to a retirement plan of
the CO as provided in section 5.04(1). The transfer must be completed on
or before the Compliance Date.

(c) SPINOFF OF ASSETS AND LIABILITIES TO A SEPARATE PLAN AND
TERMINATION OF THAT PLAN. The CO may choose to have the assets and
liabilities of the PEO Retirement Plan that are attributable to its
Worksite Employees spun off to a Spinoff Retirement Plan that is then
terminated, as provided for in section 5.04(2). The spinoff and
termination must occur on or before the Compliance Date. Plan assets must
be distributed as soon as administratively feasible after the plan
termination date.


(5) CO DECISION AND IMPLEMENTATION. The CO must provide notice of the
selected option to the PEO by a date specified by the PEO. If a CO fails
to timely inform the PEO of the option it selected, the PEO must treat the
CO as having selected option 5.03(4)(c) (Spinoff of assets and
liabilities). The PEO must implement the choice made or deemed made by
each CO on or before the Compliance Date.

(6) DETERMINATION LETTER REQUEST. The PEO must request determination
letters on the Multiple Employer Retirement Plan and the Spinoff
Retirement Plan. See section 7.02 of this revenue procedure for further
information on an application for a determination letter on the qualified
status of a Multiple Employer Retirement Plan. See section 5.06 of this
revenue procedure for further information on determination letters on plan
terminations.


.04 TRANSFERS TO CO's PLAN OR SPINOFF OF CO's ASSETS AND LIABILITIES.
This section 5.04 applies if the PEO decides to terminate the PEO
Retirement Plan; if a CO chooses to terminate its participation in the PEO
Retirement Plan and transfer its attributable assets and liabilities to
the CO's plan; or if a CO's attributable assets and liabilities are spun
off to a Spinoff Retirement Plan and distributed in connection with the
termination of the Spinoff Retirement Plan.

<<END RULING>>


(1) TRANSFERS TO CO's PLAN. (a) DOCUMENTATION OF QUALIFIED STATUS OF
PLAN MAINTAINED BY THE CO. If a CO chooses to transfer its attributable
assets and liabilities in a PEO's Retirement Plan to the CO's plan, the CO
must provide the PEO, on or before a date specified by the PEO, with
documentation that the plan to which assets are transferred is a qualified
plan established and maintained by the CO. If such documentation is
provided, the PEO must transfer the assets and liabilities attributable to
the Worksite Employees from the PEO Retirement Plan to the CO's plan
before the Compliance Date. If the CO fails to provide the PEO with this
documentation, or any other information required by the PEO to effect
transfer, on or before the date specified by the PEO, the PEO must utilize
the procedures in section 5.04(2).

(b) QUALIFIED PLAN DETERMINATION. For purposes of determining whether a
CO maintains a qualified plan, a "qualified plan" is a retirement plan
that on or before the Compliance Date either (i) had received a favorable
determination, notification, or opinion letter that considered GUST (GUST
is an acronym for the Uruguay Round Agreements Act (GATT), the Uniformed
Services Employment and Reemployment Rights Act of 1994 (USERRA), the
Small Business Job Protection Act of 1996 (SBJPA), the Taxpayer Relief Act
of 1997 (TRA '97), the Internal Revenue Service Restructuring and Reform
Act of 1998 (RRA '98) and the Community Renewal Tax Relief Act of 2000) or
(ii) had submitted a request to the Service for a determination letter
that considers GUST.


(2) SPINOFF AND TERMINATION. If a CO chooses a spinoff, or fails to
timely notify the PEO of its selection, the PEO must implement a spinoff
of the assets and liabilities of the PEO's Retirement Plan that are
attributable to the CO's Worksite Employees to a Spinoff Retirement Plan.
The Spinoff Retirement Plan may receive and hold assets and liabilities
attributable to Worksite Employees of all of the COs that selected the
spinoff option or failed to timely notify the PEO of a selection. The PEO
must then terminate the Spinoff Retirement Plan on or before the
Compliance Date and distribute benefits to the Worksite Employees
performing services for the COs as soon as administratively feasible after
the termination date. For purposes of this revenue procedure, a spinoff
means a spinoff of plan assets and liabilities attributable to the
Worksite Employees performing services for the COs selecting the spinoff
option (or failing to timely select an option) from the PEO Retirement
Plan to a Spinoff Retirement Plan that satisfies the transfer requirements
of section 414(l).


.05 METHODS OF PROVIDING NOTICE. Any notice required to be provided
under this revenue procedure may be sent by any method, including an
electronic medium, that reasonably ensures that the intended recipient
will receive timely and adequate notice. For purposes of this revenue
procedure, notice sent by United States mail is considered sent as of the
date of the United States postmark stamped on the cover in which the
notice is mailed.

.06 PLAN TERMINATIONS. (1) REQUEST FOR DETERMINATION LETTER ON PLAN
TERMINATION. In choosing any of the options relating to plan terminations,
a PEO must request a determination letter on the plan termination. Section
12 of Rev. Proc. 2002-6 (2002-1 I.R.B. 203) explains the procedures for
requesting determination letters involving qualification of a plan upon
plan termination. The permanency requirement described in section
1.401-1(b)(2) will not be raised as a disqualifying defect for plans being
terminated pursuant to this revenue procedure. The request for a
determination letter must be made within one year of the date of
termination using the applicable provisions of Rev. Proc. 2002-6.

(2) DISTRIBUTION TREATED AS BEING FROM A QUALIFIED PLAN. Distributions
made to Worksite Employees upon the termination of the PEO Retirement Plan
or Spinoff Retirement Plan in accordance with this section will not fail
to be eligible for favorable tax treatment accorded distributions from
qualified plans (including eligibility for tax-free rollovers) solely
because the plan violated the exclusive benefit rule of section 401(a)(2).


.07 EXAMPLE. (i) A PEO maintains a PEO Retirement Plan established in
1994, and the PEO uses the calendar year for its plan year. The PEO
Retirement Plan treats all Worksite Employees performing services for COs
as employees of the PEO. There are 75 COs with Worksite Employees
benefiting under the PEO Retirement Plan.

(ii) After reviewing the options set forth in section 5, the PEO
decides to convert the PEO Retirement Plan to a Multiple Employer
Retirement Plan. In accordance with the requirements of section 5.03, on
January 31, 2003, the PEO adopts amendments to the PEO Retirement Plan
converting the plan to a Multiple Employer Retirement Plan, effective
January 1, 2004. On February 14, 2003, the PEO mails notification to each
CO that it has decided to convert the PEO Retirement Plan to a Multiple
Employer Retirement Plan and explains the options available to the CO as
described in section 5.03(4). In its letter to the COs, the PEO explains
that each CO has until August 15, 2003, to notify the PEO, in writing, of
its choice. The letter explains that if the CO does not notify the PEO of
its selected option on or before August 15, 2003, the PEO will treat the
CO as having selected the spinoff and termination option. The letter
further explains that if a CO elects to adopt the Multiple Employer
Retirement Plan, the Plan must be adopted on or before December 1, 2003.

(iii) By August 15, 2003, fifty of the COs with Worksite Employees
benefitting under the PEO Retirement Plan notify the PEO of their decision
to adopt and maintain the Multiple Employer Retirement Plan for the
Worksite Employees. By December 1, 2003, forty-nine of the fifty COs
adopted the Multiple Employer Retirement Plan, effective January 1, 2004.
In accordance with section 5.03(4)(a) of this revenue procedure, on
December 10, 2003, the PEO spins off the assets and liabilities
attributable to the one CO that did not timely adopt the Multiple Employer
Retirement Plan to a Spinoff Retirement Plan.

(iv) Ten COs timely elect a transfer, in which the assets and
liabilities attributable to each CO's Worksite Employees are transferred
to a qualified retirement plan established and maintained by each CO, and
that satisfy the requirements described in section 5.04(1). The ten COs
timely provide all information required to effect the transfer, including
documentation of the plans' qualified status. The transfers to each of the
CO plans are completed by December 31, 2003.

(v) Ten COs affirmatively elect the spinoff and termination option. The
PEO spins off plan assets and liabilities attributable to the Worksite
Employees performing services for those COs to the Spinoff Retirement Plan
on December 10, 2003.

(vi) The remaining five COs failed to notify the PEO of their choice by
August 15, 2003. Therefore, in accordance with requirements in section
5.03(5), each of those COs is treated as having selected the spinoff and
termination option as its choice. The PEO spins off the assets and
liabilities of these COs to the Spinoff Retirement Plan on December 10,
2003.

(vii) On December 11, 2003, the PEO terminates the Spinoff Retirement
Plan. On February 5, 2004, the PEO submits an application for a
determination letter on the termination of the Spinoff Retirement Plan.
The PEO receives a favorable determination letter on the termination of
the plan. As soon as administratively feasible following the termination,
distributions are made to the Worksite Employees performing services for
the sixteen COs (the one CO that failed to timely adopt the Multiple
Employer Retirement Plan, the ten COs that selected the spinoff and
termination option, and the five COs that failed to timely notify the PEO
of their choice) with assets in the Spinoff Retirement Plan.

(viii) On February 5, 2004, the PEO submits an application for a
determination letter on the qualified status of the Multiple Employer
Retirement Plan, and subsequently receives such a determination letter
from the Service. Because the PEO took all of the steps required in
section 5 of the revenue procedure, the PEO Retirement Plan is entitled to
the relief set forth in section 4 of the revenue procedure.


.08 PEOs NOT ELECTING TO TAKE ADVANTAGE OF RELIEF UNDER THIS REVENUE
PROCEDURE. If a PEO does not, as of the Compliance Date, either terminate
the PEO Retirement Plan it maintains for Worksite Employees performing
services for COs (as provided for in section 5.02) or convert the PEO
Retirement Plan to a Multiple Employer Retirement Plan (as provided for in
section 5.03), the relief in this revenue procedure is not available for
any violations of the qualification requirements, including violations of
the exclusive benefit rule, by PEO Retirement Plan.

.09 NO RELIANCE ON DETERMINATION LETTERS FOR PEO RETIREMENT PLANS.
After the Compliance Date, a PEO may not rely on a determination letter
for a PEO Retirement Plan that benefits Worksite Employees performing
services for COs, regardless of when the determination letter was issued.


SECTION 6. DEFINITIONS

.01 PEO RETIREMENT PLAN. The term "PEO Retirement Plan" means a defined
contribution plan (including a plan that includes a cash or deferred
arrangement described in section 401(k)) intended to satisfy the
requirements of section 401(a) or section 403(a). The definition of a PEO
Retirement Plan does not include a plan maintained as a multiple employer
plan that has been adopted by a PEO and one or more COs.

.02 MULTIPLE EMPLOYER RETIREMENT PLAN. The term "Multiple Employer
Retirement Plan" means a defined contribution plan (including a plan that
includes a cash or deferred arrangement described in section 401(k))
intended to satisfy the requirements of section 401(a) or section 403(a),
and section 413(c), under which each CO is treated as an employer.

.03 SPINOFF RETIREMENT PLAN. The term "Spinoff Retirement Plan" means a
separate plan established by a PEO for the specific purpose of a spinoff
and termination as provided for in section 5.04(2).

.04 WORKSITE EMPLOYEES. The term "Worksite Employees" means employees
who receive amounts from a PEO for providing services to a CO pursuant to
a service agreement between the PEO and the CO.

.05 CLIENT ORGANIZATION. The term "Client Organization" (CO) means an
organization that enters into a service agreement with a PEO under which
Worksite Employees provide services to the organization.


SECTION 7. PROCEDURES AND TRANSITIONAL RULE

.01 OTHER QUALIFICATION ISSUES. (1) USE OF EPCRS. Plan qualification
issues, other than the exclusive benefit issue for which relief is
provided under this revenue procedure, may be resolved under the Employee
Plans Compliance Resolution System (EPCRS). See Rev. Proc. 2001-17 (2001-1
C.B. 589).

(2) TRANSITIONAL RELIEF FOR PEOs. For purposes of determining whether a
retirement plan maintained by a PEO for the benefit of Worksite Employees
of COs satisfies the requirements of section 401(a)(2) prior to the
Compliance Date, a PEO may treat Worksite Employees as its employees.

(3) TRANSITIONAL RULE FOR CODE SECTION 416. For purposes of determining
whether the Multiple Employer Retirement Plan is top heavy (as defined in
section 416(g)(1)(A)(ii)) in its first plan year, the determination date
with respect to the first plan year of such plan shall be the last day of
such plan year. See section 416(g)(4)(C)(ii).


.02 DETERMINATION LETTERS. (1) DETERMINATION LETTER APPLICATION. Any
application for a determination letter on the qualified status of any
Multiple Employer Retirement Plan adopted and maintained by PEOs and COs
that are seeking relief under this revenue procedure shall be made under
the relevant provisions of Rev. Proc. 2002-6.

(2) TIME OF DISQUALIFICATION PROVISION. For purposes of section
1.401(b)-1(b) the Service will treat the requirement that the PEO adopt a
Multiple Employer Retirement Plan by the Compliance Date as a
disqualifying provision.


.03 PENDING EXAMINATIONS NO BAR TO RELIEF. A PEO Retirement Plan under
examination by the Service is eligible for the relief provided by this
revenue procedure.


SECTION 8. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 2002-6 is modified.


SECTION 9. EFFECTIVE DATE

This revenue procedure is effective on May 13, 2002.


DRAFTING INFORMATION

The principal author of this revenue procedure is Jeanne Royal Singley
of the Employee Plans, Tax Exempt and Government Entities Division. For
further information regarding this revenue procedure, please contact the
Employee Plans taxpayer assistance telephone service at 1-877-829-5500 (a
toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern
time, Monday through Friday. Ms. Singley may be reached at 1-202-283-9888
(not a toll-free number).

<<END RULING>>


 

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