SECTION 2. BACKGROUND

.01 If a PEO satisfies the requirements under Rev. Proc. 2002–21, the Service will not disqualify the PEO Retirement Plan solely on the grounds that the plan has violated the exclusive benefit rule of § 401(a)(2) of the Internal Revenue Code by benefiting Worksite Employees who perform services for a CO. Under section 5 of Rev. Proc. 2002–21, a plan sponsor of a PEO Retirement Plan has two options for taking remedial action in order to obtain the relief provided in section 4 of that revenue procedure. Under the first option, the PEO can terminate the PEO Retirement Plan in accordance with section 5.02 of the revenue procedure. Under the second option, the PEO can convert its single-employer PEO Retirement Plan into a Multiple Employer Retirement Plan in accordance with the requirements under section 5.03 of the revenue procedure. The PEO must have made a decision regarding these options by the PEO Decision Date, which is defined in Rev. Proc. 2002–21 as 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, May 2, 2003). Section 7 of Rev. Proc. 2002–21 provides transitional and procedural rules for PEO Retirement Plans and Multiple Employer Retirement Plans.

.02 The definitions in Rev. Proc. 2002–21 also apply for purposes of this revenue procedure.