For applications submitted to conform to the 2020 RA List

Employee                                                       Explanation No. 8

Benefit                                                        Employee

                                                               Leasing
Plans

Note:                                                          Worksheet  Number  8  (Form  8386)  and  this  explanation 
                                                               are designed to aid the specialist in deciding whether any 
Plans submitted during the 2020 Required Amendment List        qualification issue arising by reason of section 414(n) of the 
submission period must satisfy the applicable changes in       Code needs to be covered and, if so, whether the requirements 
plan qualification requirements listed in Section IV of Notice of that section are met.
2020-83, 2020-50 I.R.B. 1597 (the 2020 RA List).
                                                               Section  9.08  of  Rev.  Proc.  2021-4,  2021-1  I.R.B.  157  (as 
This publication contains copies of:                           annually  revised),  provides  that  that  a  determination  letter 
Form 8386, Worksheet 8                                         submission which also seeks a ruling on the status of 
Form 8398, Deficiency Checksheet 8                             leased employees must specifically request that ruling in the 
                                                               submission’s cover letter (in addition to providing information 
These forms are included as examples only and should not       set forth in Section 17 therein).
be completed and returned to the Internal Revenue Service.
                                                               The  worksheet  and  explanation  (except  for  the  procedural 
                                                               information in Part I) are based on the statute itself and on 
                                                               various questions and answers in Notice 84-11, 1984-2 C.B. 
                                                               469 and Rev. Proc. 2002-21, 2002-1 C.B. 911, as amplified 
                                                               by  Rev.  Proc.  2003-86,  2003-2  C.B.  1211.  Until  applicable 
                                                               regulations  are  published,  the  guidance  provided  by  these 
                                                               questions and answers and procedures may be relied upon to 
                                                               comply with the provisions of section 414(n).

                                                               The technical principles in this publication may be changed by 
                                                               future regulations or guidelines.

Publication 7003 (Rev. 6-2021)  Catalog Number 48736V  Department of the Treasury  Internal Revenue Service  www.irs.gov

Page 2                                                                          For applications submitted to conform to the 2020 RA List

I. Required Information
Unless the plan provides that all leased employees within the meaning of section 414(n)(2) of the Code are treated as common law 
employees for all purposes under the plan, a determination letter issued with respect to the plan’s qualification under section 401(a) or 
403(a) of the Code will be a determination as to the effect of section 414(n) upon the plan’s qualified status only if the application includes:
1)      A description of the nature of the recipient organization;
2)  A copy of the relevant leasing agreement;
3)  A description of the function of all leased employees within the trade or business of the recipient organization (including data as 
        to whether all leased employees are performing services on a substantially full-time basis) and whether services are performed 
        under the primary direction or control of the recipient organization; and
4)  If the recipient organization is relying on any qualified plan(s) maintained by the leasing organization for purposes of qualification 
        of the recipient organization’s plan, a description of such plan(s) (including a description of the contributions or benefits provided 
        for all leased employees which are attributable to services performed for the recipient organization, plan eligibility, and vesting).
Rev. Proc. 85-43, 1985-2 C.B. 501

II. Applicability of Section 414 (n)
If the answers to a., b., c. and d. are “Yes” the plan sponsor is a “recipient” within the meaning of section 414(n)(1) of the Code; the persons 
performing the services for the recipient pursuant to the agreement are “leased employees” within the meaning of section 414(n)(2); and the 
person that the recipient has the agreement with is a “leasing organization” within the meaning of section 414(n)(2)(A). Leased employees 
are considered to be employees of the recipient organization for purposes of the requirements set forth in section 414(n)(3)(A) and (B), 
even though they are common law employees of the leasing organization, unless (i) they are covered by a safe harbor plan of the leasing 
organization, and (ii) leased employees (including those covered by a safe harbor plan) do not constitute more than 20 percent of the 
recipient’s nonhighly compensated work force. To constitute a safe harbor the leasing organization’s plan must meet the requirements set 
forth in section 414(n)(5)(B), which are reflected in part III of the worksheet.

Line a. The term “leased employee”, as defined in section 414(n)(2) of the Code, specifies that a leased employee is a person who is not 
an employee of the recipient. This specification was added by Pub. L. 98-369 (DEFRA) in 1984. Section 414(n)(6) defines “related persons” 
and also states that the rules of section 414(b), (c), (m) and (o) shall apply.

Line b. The agreement between the parties may be oral or written. An individual who is actually a common law employee of the recipient 
will not become an employee of another entity merely because the recipient enters into a formal “leasing agreement” with the other entity.
Notice 84-11 Q&A 6

Line c. A person is considered to have performed services on a substantially full-time basis for a period of at least one year if: (i) during any 
12-consecutive-month period such person has performed at least 1500 hours of service for the recipient, or(ii) during any 12-consecutive-
month period such person performs services for the recipient for a number of hours at least equal to 75 percent of the average number 
of hours that are customarily performed by an employee of that recipient in the particular position. The one-year period includes service 
of the employee prior to the effective date of section 414(n). In addition, any period of service performed by the employee as a common 
law employee of the recipient is taken into account for purposes of determining whether the employee has performed services on a 
substantially full-time basis for a period of at least one year.
Notice 84-11, Q&A 7
Notice 84-11, Q&A 8 & 12

Line d. Whether services are performed by an individual under primary direction or control by the service recipient depends on the facts 
and circumstances. In general, primary direction and control means that the service recipient exercises
the majority of direction and control over the individual. Factors that are relevant in determining whether primary direction or control exists 
include whether the individual is required to comply with instructions of the service recipient about when, where, and how he or she is to 
perform the services, whether the services must be performed by a particular person, whether the individual is subject to the supervision of 
the service recipient, and whether the individual must perform services in the order or sequence set by the service recipient. Factors that 
generally are not relevant in determining whether such direction or control exists include whether the service recipient has the right to hire 
or fire the individual and whether the individual works for others.
Conference Report 1982-2 C.B. 522, 679
IRC 414(n)(2)(C)

Page 3                                                    For applications submitted to conform to the 2020 RA List

III. Safe Harbor
Section 414(n)(5) of the Code provides a safe harbor for a recipient organization if two conditions are met:
i)      The leasing organization maintains a qualified nonintegrated money purchase pension plan that provides for an annual contribution 
        by the employer of 10 percent of total compensation (defined below) for each participant, full and immediate vesting, and immediate 
        participation by each employee of the leasing organization (other than employees who perform substantially all of their services 
        for the leasing organization). The requirement as to immediate participation does not apply to any individual whose compensation 
        from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000.
ii)  Leased  employees  do  not  constitute  more  than  20  percent  of  the  recipient’s  nonhighly  compensated  work  force.  The  term 
        “nonhighly compensated work force” means the aggregate number of individuals (other than highly compensated employees 
        within the meaning of section 414(q) of the Code):
        A)    Who are employees of the recipient (other than leased employees) and have performed for the recipient (or for the recipient 
              and related persons) on a substantially full-time basis for a period of at least one year, or
        B)    Who are leased employees with respect to the recipient (including those excludible if the safe harbor rule applies).
        The term “compensation” has the same meaning as when used in section 415, except that it includes:
        A)    employer contributions under a qualified cash or deferred arrangement to the extent not included in gross income under 
              section 402(e)(3) or 402(h)(1)(B).
        B)    any amount which the employee would have received in cash but for an election under a cafeteria plan, and
        C)    any amount contributed to a section 403(b) annuity contract pursuant to a salary reduction agreement.
If both of these requirements are met, the leased employees participating in the safe harbor plan need not be considered employees of the 
recipient for any purpose pertaining to the requirements listed in section 414(n)(3)(A), (B) and (C).
Sec. 414(n)(5)(C)(ii) and (iii)

IV. Requirements
Line a. How leased employees will be treated under the recipient’s plan depends on the terms of the plan. Therefore, if an organization 
utilizes the services of leased employees the plan must specifically provide how leased employees will be treated under the recipient’s plan.
Notice 84-11, Q&A 16

Line b. Although the plan must treat these employees as though they are the recipient’s employees, the fact that a leased employee is 
not covered by the recipient’s plan does not necessarily mean the recipient’s plan does not qualify. A plan may still meet the coverage 
requirements of section 410, even though none of those leased employees is covered. Any contributions made or benefits funded by the 
leasing organization on behalf of a leased employee are deemed to be provided by the recipient at such time as the leased employee is 
required to be covered under the recipient’s plan.
Notice 84-11, Q&A 14, 15
Notice 84-11, Q&A 17

Line c. All service as an employee (whether by reason of being a leased employee or otherwise) must be credited. Credited service must 
also include any period of service during which the employee would have been a leased employee but for the requirement that substantially 
full-time services be performed for at least one year.
Sec. 414(n)(4)

V. PEOs
Line c. Rev. Proc. 2002-21 describes certain relief available to qualified defined contribution retirement plans maintained by professional 
employer organizations (PEOs) that benefit Worksite Employees, as that term is defined in the 2002 revenue procedure. In general, section 
414(n) does not permit PEOs to maintain plans for Worksite Employees who are not the common law employees of the PEO. If a PEO 
had a retirement plan in existence on May 13, 2002, that benefited Worksite Employees, the PEO had the option of either converting the 
PEO Retirement Plan to a multiple employer plan or terminating the plan by the last day of the first plan year of the PEO Retirement Plan 
beginning on or after January 1, 2003. 
In addition, Rev. Proc. 2003-86 provides guidance on various transitional issues.

                                                                                For applications submitted to conform to the 2020 RA List
                                             Employee Benefit Plan 

                                            Employee Leasing 
                                   (Worksheet Number 8 – Determination of Qualification)
Instructions – All items must be completed unless otherwise indicated. In the absence of further instructions, a “Yes” answer generally 
indicates a favorable conclusion is warranted (subject to Part V), while a “No” answer indicates a problem exists. Please use the space 
on the worksheet to explain any “No” answer. See Publication 7003 Explanation 8, for guidance in completing this form.
The technical principles in this worksheet may be changed by future regulations or guidelines
Name of plan

I. Required Information                                                                                          Plan Reference Yes No N/A
a. Does the employer’s plan provide that all leased employees within the meaning of
section 414(n)(2) are treated as common law employees for all purposes under the
plan? (If the answer is “Yes”, go to Part V of this worksheet)
b. Has the applicant submitted all of the information needed for a determination
covering section 414(n) of the Code? (If the answer is “No”, go to Part V of this
worksheet.) [813, 814, 815]
II. Applicability of Section 414(n)                                                                              Plan Reference Yes No N/A
a. Are services performed for the plan sponsor, or for an entity that must be
aggregated with the sponsor, by a person or persons who are not employees of
such plan sponsor or aggregated entity? [801]
b. Are such services performed pursuant to an agreement between the plan sponsor
and any other person? [802]
c. Have such services been performed for the plan sponsor or aggregated entity, or for
the plan sponsor or aggregated entity and a related person, on a substantially full-
time basis for a period of at least a year? [803]
d. Are services performed under the primary direction or control of the plan sponsor?
[804]
(If the answer to question a, b, c or d is “No,” go to Part V of this worksheet)
III. Safe Harbor                                                                                                 Plan Reference Yes No N/A
a. Does the leasing organization (see explanation) maintain a qualified money
purchase pension plan? (805, 806)
b. If so, does such plan provide for:
(i) A nonintegrated employer contribution rate for each participant of at least 10
     percent of compensation? [805, 806]

(ii) Immediate participation by each employee other than:provided as an example only and should not be 
     A. Employees who perform substantially all of their services for the leasing
     organization, and
     B. Employees whose compensation from the leasing organization in each plan
     year during the 4-year period ending with the plan year is less than $1,000?
     [805, 806]
(iii) Full and immediate vesting? [805, 806]
c. Do leased employees constitute 20 percent or less of the recipient’s nonhighly
This form iscompensated work force?
(If the answers to questions a, (b)(i), (b)(ii), (b)(iii), and c above are “Yes,” go to Part V of this worksheet)
     completed or returned to the Internal Revenue Service
IV. Requirements                                                                                                 Plan Reference Yes No N/A
a. Does the recipient’s plan specifically provide how leased employees will be treated
under the plan? [818]
b. Is each leased employee considered in determining whether the plan meets the
coverage and other requirements? [836, 837]
Form 8386 (Rev. 6-2021)            Catalog Number 62475B publish.no.irs.gov       Department of the Treasury - Internal Revenue Service

                                                                    For applications submitted to conform to the 2020 RA List
IV. Requirements – Continued                                                              Plan Reference       Yes No N/A
c. For purposes of the applicable requirements under section 414(n)(3), is the entire 
period for which the employee has performed services for the recipient (whether as 
a leased employee or otherwise) taken into account, including any period for which 
the employee would have been a leased employee but for the requirement that the 
person has performed services for the recipient (or for the recipient and related 
persons) on a substantially full-time basis for a period of at least one year? [812]
d. Does the recipient’s plan meet the requirements as to:
(i) Participation, including the minimum participation requirements?
(ii) Vesting, including the special rules for top-heavy plans?
(iii) Nondiscrimination?
(iv) Limitations on benefits and contributions?
(v) IRC 401(a)(17) limit on compensation?
V. Professional Employer Organizations                                                    Plan Reference       Yes No N/A
a. Is the plan a plan other than a defined contribution plan? (If the answer is “Yes”, do 
not complete the rest of this worksheet.)
b. If the answer to question a is “No”: Is the plan a professional employer organization 
retirement plan?
c. If the answer to question b is “Yes”: Were remedial actions taken in accordance with 
section 5 of Rev. Proc. 2002-21 as amplified by Rev. Proc. 2003-86? [838]

                        provided as an example only and should not be 

This form is

     completed or returned to the Internal Revenue Service

Form 8386 (Rev. 6-2021) Catalog Number 62475B            publish.no.irs.gov       Department of the Treasury - Internal Revenue Service

                                                                        For applications submitted to conform to the 2020 RA List
                               Employee Plan Deficiency Checksheet
                                 Attachment Number 8
                                         Employee Leasing
For IRS Use                    Please furnish the amendment(s) requested in the section(s) checked below.
813, 814, 815     Your application indicates that you received services provided by leased employees. However, your plan does 
     I.b.         not provide that all such employees are treated as common law employees for all purposes under the plan. In 
                  order to receive a determination letter under section 401(a) or 403(a) of the Code that will be a determination as 
                  to the effect of section 414(n) upon the plan’s qualified status, the following information must be submitted:
                        (1) A description of the nature of the business of your organization;
                        (2) A copy of the relevant leasing agreement(s);
                        (3) A description of the function of all leased employees within your trade or business (including data as to
                        whether all leased employees are performing services on a substantially full-time basis and whether
                        services are performed under the primary direction or control of the recipient organization).
                        (4) If your organization is relying on any qualified plan(s) maintained by the employee leasing organization for
                        purposes of qualification of your plan, a description of such plan(s) (including a description of the
                        contributions or benefits provided for all leased employees which are attributable to services performed for
                        your organization, plan eligibility and vesting). Rev. Proc. 85-43, 1985-2 C.B. 501.
     801          Please tell us if you (including any entity required to be aggregated with you under IRC section 414(b), (c), (m) 
     II.a.        or (o)) receive services of a person who is not your employee and who is leased to you by another employer. 
                  IRC sections 414(n)(2) and 414(n)(6).
     802          Please tell us whether the services of employees provided by another organization are provided according to an 
     II.b.        agreement between the recipient and the leasing organization. IRC section 414(n)(2)(A) and Notice 84-11, 
                  1984-2 C.B. 469, Q&A 6.
     803          Your application shows that you are the recipient of services provided by employees leased to you by another 
     II.c.        employer. Such employees are not covered by the plan. Please tell us if any of these employees have 
                  performed, during a consecutive 12-month period, either 1,500 hours of service or 75 percent of the average 
                  number of hours customarily performed by an employee of the recipient in that particular position. IRC section 
                  414(n)(2)(B) and Notice 84-11, 1984-2 C.B. 469, Q&A 7.
     804          Your application shows that you are the recipient of services provided by employees leased to you by another 
     II.d.        employer. Such employees are not covered by the plan. Please show that the service performed by such leased 
                  employees are not performed under the primary direction or control of the recipient organization. IRC section 
                  414(n)(2)(C).
     805, 806     Section 414(n)(5) of the Code provides a safe harbor for a recipient organization if the leasing organization 
III.a., b. and c. maintains a qualified, nonintegrated money purchase pension plan that provides for immediate participation, full 
                  and immediate vesting, and an annual contribution of 10 percent of total compensation for the leased employee. 
                  If these requirements are met and leased employees do not constitute more than 20 percent of the recipient 
                  organization’s nonhighly compensated workforce, the leased employee does not need to be considered an 
                  employee of the recipient for any purpose pertaining to the qualified plan of the recipient organization. Please 
                  tell us whether these requirements are met. If so, furnish a copy of the plan maintained by the leasing 
                  organization and show that leased employees constitute 20 percent or less of your nonhighly compensated 
                  workforce. IRC section 414(n)(5) and Notice 84-11, 1984-2 C.B. 469, Q&A 18 and 19.provided as an example only and should not be 
     818          A plan maintained by the recipient of services of leased employees must specifically provide how leased 
     IV.a.        employees will be treated under the recipient’s plan. Your application indicates that you receive services 
                  provided by leased employees. Your plan should be amended. Notice 84-11, 1984-2 C.B. 469, Q&A 16.
     836, 837     Section       of the plan should be amended to provide that each leased employee must be considered in 
     IV.b.        determining whether the recipient’s plan satisfies the minimum coverage requirement of section 410(b) of the 
                  Code. The leased employee is considered the recipient organization’s employee for purposes of Code sections 
                  401(a)(3), (4), (7), (16), (17) and (26) and sections 408(k), 408(p), 410, 411, 415 and 416, as well as sections 
                  79, 106, 117(d), 120, 125, 127, 129, 132, 137, 274(j), 505 and 4980B, after performing services for the recipient 
This form is(or related organizations) on a “substantially full-time basis” for at least one year. A person has performed 
                  services on a substantially full-time basis within the meaning of section 414(n)(2)(B), if that person is credited 
     completedwith the lesser of 1,500orhoursreturnedof service or 75 percent oftothe hoursthethat are customarilyInternalperformed byRevenuean   Service
                  employee of that recipient in the particular position. IRC sections 414(n)(1), (2), (3) and (4) and Notice 84-11, 
                  1984-2 C.B. 469, Q&A 7.

Form 8398 (Rev. 6-2016)   Catalog Number 63079Z        publish.no.irs.gov           Department of the Treasury - Internal Revenue Service

                                              For applications submitted to conform to the 2020 RA List
     812   Section       of the plan should be amended to provide that all service performed for the recipient by a 
     IV.c. leased employee (including any creditable service performed prior to the existence of the employee leasing 
           agreement and service during any period for which the employee would have been a leased employee but for 
           the fact that the employee did not perform services for the recipient on a substantially full-time basis for at least 
           one year) will be credited under the recipient’s plan. IRC sections 414(n)(1), (2), (3) and (4) and Notice 84-11, 
           1984-2 C.B. 469, Q&A 8 and 12.
     838   If the plan was not timely amended to (1) terminate the plan or (2) cause the plan to become a multiple 
     V.c.  employer plan, plan qualification issues other than the exclusive benefit rule, may be resolved under the 
           Employee Plans Compliance Resolution System, Rev. Proc. 2019-19, 2019 I.R.B. 674 (or its successors).

                        provided as an example only and should not be 

This form is

     completed or returned to the Internal Revenue Service

Form 8398 (Rev. 6-2016) Catalog Number 63079Z publish.no.irs.gov Department of the Treasury - Internal Revenue Service