Short answer: When you move workers off an employer of record (EOR) and onto a professional employer organization (PEO), the EOR’s 401(k) does not come with you. You either join the PEO’s multiple employer or pooled employer plan, or set up your own single-employer plan that runs on the PEO’s payroll. We compare providers that support each route in 401(k) providers for PEO clients. Employees’ old balances follow the EOR plan’s rules: usually they can leave the money there, roll it into the new plan or an IRA, or cash out. Start the new plan on the same date as your first PEO payroll, and check the safe harbor timing rules before you promise a match.

Why the EOR’s 401(k) stays behind

With an EOR, the EOR is the legal employer of your workers and offers its own benefits, often including a 401(k) it sponsors. Arrangements differ, so check your EOR agreement. With a PEO, your company is the employer of its workers and the PEO takes on certain employer responsibilities by contract. The Department of Labor describes a PEO as “a human-resource company that contractually assumes certain employer responsibilities of its client employers” (29 CFR 2510.3-55).

So when workers move from the EOR to your own company under a PEO, they usually stop being employees of the EOR. The EOR’s plan was set up for the EOR’s employees, so your company needs a plan of its own, or a seat in the PEO’s plan.

Your two options: the PEO’s plan or your own plan

A few terms:

• Multiple employer plan (MEP): one plan maintained by two or more unrelated employers (IRS). A bona fide PEO can sponsor one for its clients if it meets the DOL’s conditions, including staying responsible to participants “after the client employer no longer contracts with the organization” (29 CFR 2510.3-55(c)).

• Pooled employer plan (PEP): a plan for unrelated employers run by a registered pooled plan provider, created by the SECURE Act of 2019 (ERISA section 3(43), 29 U.S.C. 1002).

Which to pick: the PEO’s plan trades control for less administration. Your own plan keeps the plan with you if you change PEOs again, which matters if this is your second payroll move in a few years.

What happens to employees’ balances in the EOR plan

Leaving the EOR is usually a termination of employment from the EOR’s point of view, so the EOR plan’s rules for former employees apply. The IRS lists the usual choices (IRS):

1. Leave the money in the EOR plan, if the plan allows it.

2. Roll it into the new plan, if the new plan accepts rollovers.

3. Roll it into an IRA.

4. Cash out, which is taxable and may trigger a 10% additional tax for people under 59½.

Small balances can be paid out without the employee’s consent. Under SECURE 2.0, the threshold for doing that is $7,000 (26 U.S.C. 411(a)(11)). Some older IRS pages still say $5,000.

Some EORs offer to transfer accounts directly to the new plan instead of paying out each employee. Ask your EOR whether a plan-to-plan transfer or spin-off is available.

Watch the annual limit. Deferrals made in the EOR plan earlier in the year count toward the employee’s limit in the new plan. In 2026 the limit is $24,500, and the IRS says you “aggregate all elective deferrals you made to all plans” (IRS). Ask employees, or the EOR, for year-to-date deferrals before the first PEO payroll. An employee who goes over must tell a plan by April 15 of the next year to get the excess back without extra tax.

Timing the new plan with your PEO go-live

1. Pick the PEO start date first. The plan’s effective date should match the first PEO payroll so no pay period goes without deductions.

2. Work back from that date. Allow time for plan setup, payroll deduction codes in the PEO’s system, employee enrollment and any notices.

3. Prefer January 1 when you can. A plan year that starts with the new PEO avoids mixing two plans’ deferrals in one year for limits and testing.

4. Tell employees what to do with their EOR balance. Give them the EOR’s contact and the new plan’s rollover instructions in the same message.

5. Check the first two payrolls. Make sure deductions reach the plan and match each employee’s election.

Safe harbor cautions if you start mid-year

A safe harbor 401(k) skips most nondiscrimination testing in exchange for a required employer contribution, but its timing rules are strict:

• A new safe harbor plan needs a plan year of at least 3 months, and the 401(k) feature must start no later than 3 months before the plan year ends. For a calendar-year plan, that means October 1 at the latest (26 CFR 1.401(k)-3(e)).

• The short-year exception does not apply to a “successor plan.” A plan is a successor plan if 50% or more of its eligible employees were eligible under another 401(k) maintained by the employer in the prior year (26 CFR 1.401(k)-2(c)(2)(iii)). Whether an EOR’s plan counts as one “maintained by the employer” is a legal question for your ERISA counsel.

• A nonelective safe harbor can be added later. An existing plan can switch to a 3% nonelective safe harbor if it is amended before the 30th day before the plan year ends, or later with a 4% contribution (IRS).

• Other mid-year changes are limited by IRS Notice 2016-16. See mid-year safe harbor changes and the safe harbor 401(k) page.

How Basic Capital handles an EOR-to-PEO move

• Plans for either path: Basic Capital offers Safe Harbor, Traditional and Pooled 401(k) plans, including multiple employer and pooled employer plans. For PEOs it supports a PEO-sponsored MEP or PEP, a standalone or carve-out plan, or a second plan beside an existing MEP. See pooled plans and Basic Capital for PEOs.

• Payroll: 300+ payroll integrations, including Deel; Basic Capital is one of the US 401(k) providers in Deel Retirement.

• Old balances: employees can roll outside balances in through Basic Capital’s rollover partner, Beagle, which books a call and handles the paperwork with the old provider; rollovers usually show in about 1 to 2 weeks.

• Timeline: most employers are live in 30 to 60 days.

• For PEOs’ clients: a 1:1 dedicated support specialist and on-site trainings.

If you are planning a move, talk to us about matching your plan start to your PEO go-live.

Frequently asked questions

Do employees lose their 401(k) money when we leave the EOR? No. Their vested balances stay theirs. They can usually leave them in the EOR plan, roll them over, or cash out under the plan’s rules.

Can we keep the EOR’s 401(k) after moving to a PEO? Generally no, because the plan is the EOR’s and your workers are no longer its employees. Ask the EOR whether it offers any transfer option.

Should we join the PEO’s 401(k) or start our own? Join the PEO’s plan if you want the least administration and expect to stay with the PEO. Start your own if you want plan design control or might change PEOs.

Can we start a safe harbor 401(k) in the middle of the year? A new plan can, if it starts by October 1 for a calendar year and isn’t a successor plan. An existing plan can add a nonelective safe harbor later in the year.

References

• 29 CFR §2510.3-55, Association retirement plans and other multiple-employer plans. https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-B/part-2510/section-2510.3-55

• U.S. Code, Title 29, §1002 (ERISA §3(43), pooled employer plan). https://www.govinfo.gov/content/pkg/USCODE-2023-title29/html/USCODE-2023-title29-chap18-subchapI-subtitleA-sec1002.htm

• Internal Revenue Service. (n.d.). Multiple employer plans. https://www.irs.gov/retirement-plans/multiple-employer-plans

• Internal Revenue Service. (n.d.). Retirement topics: termination of employment. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-termination-of-employment

• U.S. Code, Title 26, §411(a)(11). https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapD-partI-subpartB-sec411.htm

• Internal Revenue Service. (n.d.). Retirement topics: 401(k) and profit-sharing plan contribution limits. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

• 26 CFR §1.401(k)-3, Safe harbor requirements. https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.401(k)-3

• 26 CFR §1.401(k)-2, ADP test. https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.401(k)-2

• Internal Revenue Service. (n.d.). Mid-year changes to safe harbor 401(k) plans and notices. https://www.irs.gov/retirement-plans/mid-year-changes-to-safe-harbor-401k-plans-and-notices

All retrieved 2026-11-11.