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controlled group/affiliated service group


Guest mcw
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Guest mcw

Corporation A, Corporation B, and Corporation C are equal partners in partnership ABC. I do not think this is a controlled group. However, it is an affiliated service group. If ABC has a plan and A, B, and C adopt it, do I have a multiple employer plan, have to file the 5300, and pay the increased user fee?

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From the 5500 instructions...

A "controlled group" is generally considered one employer for Form 5500 reporting purposes. A "controlled group" is a controlled group of corporations under Code section 414(b), a group of trades or businesses under common control under section 414©, or an affiliated service group under section 414(m).

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Proposed 1.414(m)-3©:

© MULTIPLE EMPLOYER PLANS--

(1) GENERAL RULE. If a plan maintained by a member of an affiliated

service group covers an individual who is not an employee of that

member, but who is an employee of another member of that affiliated

service group, the plan will be considered to be maintained by the

member that does employ that individual. Thus, the plan will be

considered to be maintained by more than one employer for purposes of

section 413©(2) (relating to the exclusive benefit rule), (4)

(relating to funding), (5) (relating to liability for funding tax),

and (6) (relating to deductions). Therefore, a member of an

affiliated service group may deduct contributions on behalf of

individuals who are not employees of that member, if the individuals

are employed by another member of that affiliated service group.

(2) SPECIAL RULE. The multiple employer plan rule contained in

paragraph ©(1) shall not apply in the case of a controlled group of

corporations (as described in section 414(b)) or a group of trades or

businesses under common control (as described in section 414©).

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Guest mcw

Ok. I found the reference in the 5500. However, it says for the purpose of the 5500. The reg cited is where I first looked and caused concern. The way I read that reg is that a plan maintained by an affiliated service groups is a multiple employer plan unless you are a member of a controlled group. I cannot find a definition of controlled group anywhere that included affiliated service groups. Furthermore, the example in the reg is almost identical to my situation and the example says that it is a multiple employer plan.

(e) Example. The provisions of this section may be illustrated by the following example.

(1) T is incorporated and Corporation T is a partner in a service organization. Corporation T employs only its sole shareholder and maintains a retirement plan. W and Z, the other partners in the service organization, are not incorporated. Each partner has a one-third interest in the service organization. The partnership has eight common law employees.

(2) Considering the partnership as a First Service Organization, Corporation T is an A Organization because it is a partner in the First Service Organization and regularly performs services for the partnership or is regularly associated with the partnership in performing services for third persons. Accordingly, the partnership and Corporation T constitute an affiliated service group.

(3) If the retirement plan maintained by Corporation T covers any of the common law employees of the partnership, it will be benefiting individuals who are not employees of the member of the affiliated service group maintaining the plan (Corporation T). As such, the plan will be considered to be maintained by more than one employer, and will be subject to the rules of section 413©(2), (4), (5), and (6) and the regulations thereunder. Thus, contributions by Corporation T on behalf of these individuals will not fail to be deductible under section 404 merely because they are not employees of Corporation T. In testing for discrimination under section 401(a)(4), all of the compensation paid to the employees of the partnership must be taken into account in determining their contributions or benefits under the plan, without regard to the percentage of the partnership owned by Corporation T.

Am I missing something?

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Guest mcw

I found the answer in Rev Proc 2003-6. Section 10 states that plans maintained by affiliated service groups are not multiple employer plans. That is good enough for me.

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  • 4 years later...
Guest amandazh

How do companies become subject to the rules under IRC Section 414(m) regarding Affiliated Service Group issues and Controlled Group issues with regards to retirement plan funding options and what options do they have to avoid the pitfalls associated with them?

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