Michael A. Webb, Vice President, Retirement Plan Services, Cammack LaRhette Consulting, answers:
It is interesting there is no reference to leased employees in the final 403(b) regulations. Thus, we need to look to Code Section 414(n) as your describe.
Though 414(n) does indeed treat leased employees as common law employees after satisfying certain statutory requirements, including the performance of services on a substantially full-time basis for the recipient of at least one year and performance of such services under primary direction and/or control by the recipient, 403(b) is not listed among the myriad of Code sections to which such treatment applies. Thus, absent definitive future IRS guidance to the contrary, it would appear that the leased employee rules do not apply – instead, the general common law, facts and circumstances test applies to determine if the workers in question are employees of the plan sponsor, at least for purposes of the universal availability rule of Code section 403(b)(12)(A)(ii).
We note that there are some older, pre-final regulation private letter rulings that indicate in their facts that leased employees as defined in Code section 414(n) could be excluded from 403(b) plan participation, but it is not clear those continue to be the view of the IRS, and they cannot be relied upon by other taxpayers in any event. Also, note that there is one type of non-employee that can participate in a 403(b) plan – a minister, under Code section 414(e)(5).
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