The IRS will not disqualify the plan because of violations of the exclusive benefit rule for plan years before the Compliance Date.  This only applies to exclusive benefit rule violations resulting from improperly covering Worksite Employees who are not common law employees of the PEO. (¶4.01.)

Employees receiving distributions after termination of the Spinoff Retirement Plan or the terminating PEO Retirement Plan will be able to treat those distributions as coming from a qualified plan, even though the plan may have violated the exclusive benefit rule by covering the Worksite Employees. (¶5.06(2).)

For purposes of determining whether the spinoff plan or the PEO Retirement Plan (if the PEO decided to terminate it), is qualified upon termination, Worksite Employees may be treated as though they were common law employees of the PEO.  Effectively, this allows the PEO, if it decides to terminate, to file for a determination letter on termination without having to rerun all of its coverage and nondiscrimination testing since inception considering only its own employees.  There is no comparable provision, however, for a PEO which chooses to change to a Multiple Employer Retirement Plan. (¶4.03.)