Deduction Limit For An affiliated Service Group

[Guest merlin]

How is the deduction limit calculated for an asg? There is a reg. (proposed?) that says that if one member of the asg sponsors a plan that covers employees of another member,the 2nd member is deemed to sponsor the plan, which makes it a multiple employer plan. IRC 413©(6) says that each employer in a multiple employer plan calculates its deduction under 404 separately. But 414(m) doesn't mention anything about 404.Can I make the logical leap that the members of the asg each have separate 404 limits?

[Guest merlin]

Sorry,forgot to mention that one plan of the group (my client) is a db.Hence the post on this board. The other is a ps plan that is handled by another firm.

[Guest rhp]

Check out the 1983 proposed regulations of 1.414(m)-3©. They were issued before 413© was amended in 1988. Have both entities adopted the plans?

[Guest merlin]

That's probably the cite I'm looking for.Many thanks. And yes, both entities have adopted the plan.

[Blinky the 3-eyed Fish]

Merlin, why do you say it's a multiple employer plan? They are after all an ASG and therefore related entities.

[Mike Preston]

I'm with Blinky. It isn't a multiple employer plan, it is a plan that is sponsored by more than one employer, but each employer is a member of an asg. In any event, each employer in the ASG has their own 404 limit unless the plan was in effect before 1988.

[Guest merlin]

Sorry for the verbal shorthand.Prop. reg. 1.414(m)-3© says that if a plan sponsored by a member of an asg covers an employee who is not employed by that member but who is employed by another member of the asg,the plan will be considered to be sponsored by that member,which makes it a plan maintained by more than one employer. Then it goes on to refer you to certain sections of 413©. It's not a true multiple employer plan, but is treated as one for certain purposes,including deductions under 413©(6). Which I think brings us to the same conclusion anyway,that each member has its own limit.

[Mike Preston]

I agree that each entity has its own 404 limit, unless the plan was in existence before 1989.

[Guest rhp]

If a single employer adopted a plan pre 1989, then later became a member of an affiliated service group with another entity (for example, in 1995) would you agree that each entity of the affiliated service group which has adopted the plan has its own 404 limit (since it was not a "multiple employer plan" pre 1989)?

[Mike Preston]

I don't have time to do an exhaustive review of the relevant sections, but it seems to me there is a bit of a confusion created by the language used in the regulations. Nonetheless, I agree with your conclusion at first blush. Maybe somebody else has the time to review the regs, especially the interplay of 1.411-5b3 to 1.413-2a2ii.